I recently read John Perkins’s, The New Confessions of an Economic Hitman. Perkins’s job was to convince leaders of developing nations - often through bribes and threats, to accept development loans from the World Bank and other US-controlled institutions, ensuring that they contracted these projects to U.S companies. Such loans provided political influence for the U.S and access to natural resources for U.S corporations.
As Perkins describes, his job was...
To encourage world leaders to become part of a vast network that promotes US commercial interests. In the end, those leaders become ensnared in a web of debt that ensures their loyalty. We can draw on them whenever we desire — to satisfy our political, economic, or military needs. In turn, they bolster their political positions by bringing industrial parks, power plants, and airports to their people. The owners of US engineering/construction companies become fabulously wealthy.
At a glance, it looks like a win-win game, and the term “economic hitmen (EHMs)” is over-fetched. It’s a win for the U.S and its companies, citizens of the developing countries who benefit from these developments projects and it also gives their leaders a chance for re-election, right? If you recall, one key condition of these loans is that they contract U.S companies to build these projects. Most of the money never left the United States; They transferred it from banks in Washington to engineering firms in New York, Houston, or San Francisco. The EHMs also made sure that the recipient country agreed to buy airplanes, medicines, tractors, computer technologies, and other goods and services from U.S corporations.
They require countries to pay back all the loans plus interest although the principal was returned almost immediately to U.S corporates. Money that was budgeted for health care, education, and other social services is diverted to pay interest on the loans. In the end, debt shackles the country. If the loan isn’t paid, the International Monetary Fund (IMF) hitmen arrive and demand that the government offer its oil or other resources to U.S corporations at cut-rate prices. Surely not a win-win anymore! Reading Perkins’s book, it tempted me to think of the U.S as the devil of the world. However, history proves that empires have gone much further and done so much worse to establish their dominance.
The British Empire was at its height, the largest empire on earth. The British achieved this “feat” by using its armies and naval prowess to conquer lands and establish dominance on territories all over the world. This enabled the British to harness massive economic benefits from the resources of its colonies and the cheap labour from local people, besides spreading their language and culture. To the locals of the colonies, this meant the loss of land, forced labour, discrimination, or death if you resisted.
In his book, An Era of Darkness, Shashi Tharoor reveals the atrocities carried out by the British empire in India. “Almost thirty-five million Indians died because of acts of commission and omission by the British in famines, epidemics, communal riots, and wholesale slaughter like the reprisal killings after the 1857 War of Independence and the Amritsar massacre of 1919.” Dr. Tharoor explains how the British destroyed Indian industry (even chopping off the thumbs of skilled fabric artisans who made better material than the British in Britain) so India could become a captive market for Britain with raw material brought in from India.
In the 1519-1939 period, the British “migrated” 5.3 million people, of whom 58 percent were African slaves, 36 percent were Indian indentured laborers, and 6 percent were convicts. Now, here is a ridiculously weird fact:
When slavery was abolished, the British government paid compensation, not to the men and women so inhumanely pressed into bondage, but to their former owners, for their ‘loss of property’!
Just like the U.S has “helped” our developing nations with loans, grants, and aid to help us develop and eradicate poverty, Britain and other European colonialists can argue that we also benefited from colonialism. The English language, improved literacy, better health care systems, and the development of infrastructure are some of them. However, these “benefits” were never actually intended for the benefit of the colonized but introduced to serve the interests of the colonizers.
The fact is, European imperialists acquired colonies for self-serving reasons and they benefited handsomely and they never really let go.
France colonized most of the West and Central African nations during the colonial era. These nations provided France with an array of natural resources besides manpower during the two world wars. After world war two, there was a rallying call for decolonization. The French economy was undergoing reconstruction because of the devastating effects of the war and therefore required the massive resources of its colonies. France offered the “elites” of these colonies an independence deal that would continue to tie these nations to France. They would compensate the elites handsomely and back them for political seats.
France introduced a common currency - the CFA franc that would guarantee France’s control over the resources, economic structures, and political systems of its former colonies. They designated CFA franc in two main blocs, one for the West African Economic and Monetary Union (WAEMU), comprising eight member states, and another for the six members of the Central African Economic and Monetary Community (CAEMC). The currency is issued in these two blocs by two separate central banks. The French can veto their decisions and the ECB sets monetary policy. Banque de France previously set it but it changed since French citizens voted to adopt the euro via a referendum. No one cared about CFA nationals’ opinions and were not included in negotiations that would peg their money to a new currency. The French treasury guarantees convertibility of the CFA franc with the euro and the cost of this "guarantee" is that the two central banks have to deposit 50 percent (previously 100 percent) of their foreign exchange reserves in a special French Treasury operating account. They also print the CFA francs in France.
The CFA franc model benefits France in several ways as cited from this article: bonus reserves to use at its discretion; big markets for expensive exports and cheap imports; the ability to purchase strategic minerals in its domestic currency without running down its reserves; favourable loans when CFA nations are in credit, and favourable interest rates when they are in debt (for stretches of history the French inflation rate has even exceeded the loan interest rate, meaning France was forcing CFA nations to pay a fee to store their reserves abroad); and, finally, a “double loan,” in which a CFA nation will borrow money from France, and, in looking to deploy the capital, have little choice given the perverse macroeconomic circumstances but to contract with French companies. This means the loan principal immediately returns to France but the African nation is still saddled with both principal and interest, just as we saw with the U.S.
The CFA franc zone is the poorest in Sub-Saharan Africa despite being the richest in natural resources.
Reading about economic hitmen, I was sceptical and wanted to believe it’s far-fetched. But it didn’t take me long to realize that the system Perkins was describing is remarkably similar to what China is currently doing to African states and developing nations in other parts of the world. The Kenyan Standard Gauge Railway(SGR) connects the capital - Nairobi to the coastal city of Mombasa. It was completed in 2017 - just before a general election and it cost US$3.6 billion, the most expensive infrastructure project since independence. The Export-Import Bank of China(EXIM) loaned $3.23 billion. China Road and Bridge Company(CRBC) was given the construction contract and since a term on the loan was to have an operator acceptable by Exim, CRBC was also contracted as the operator. The terms also state that, if Kenya defaults in its obligation, Exim would become the principal over some Kenyan assets, including the Mombasa port and also the inland container depot in Nairobi.
When President Kenyatta banned Chinese fish imports in response to public outcry over the unregulated importation of fish from China with Kenyan fishers lamenting on how the foreign fish had flooded markets. The Chinese government used the Standard Gauge Railway as leverage against Kenya by threatening to withdraw funding for the project besides imposing trade sanctions. The Kenyan government lifted the ban on Chinese fish imports soon after.
Besides the SGR, Kenya has received other various loans from the Chinese with the latest being a $505 million financing of the Nairobi expressway that is currently under construction by CRBC. They will complete the project by early 2022 - just in time for the next general election. As of December 2020, Kenyan debt stood at $76 billion with about $7 billion coming from China - her largest debtor.
An immense problem with these loans is that they end up in the pockets of a few politicians and bureaucrats, with Kenya losing $10 billion every year to corruption while the burden of paying them is delegated to taxpayers. On April the IMF loaned the country $2.3 billion despite online protests from Kenyans urging IMF not to loan Kenya money since most of it would be lost to corruption and the country is already overburdened by debt. To meet the loan requirements, the salary remuneration commission announced there would be no salary increments for civil servants for two years regardless of the rising cost of living and increase in taxation - like the increase in the rate of exercise duty from 15 percent to 20 percent on telephone and internet data services.
Is all hope lost?
In the Wretched of the Earth, Frantz Fanon argues that violence is key in the struggle for decolonization - Fanon’s Algeria had been subject to too much brutality from France. But times have changed. In Fanon’s era, violence defined and sustained colonialism. Today’s neo-colonialism is based on monetary oppression. Previously, we didn’t have a way to fight this kind of oppression. A few people in governments or the metropole have always controlled money. Now we have a tool to fight back. One which has changed my view of the world and the way I thought about money, courtesy of Satoshi Nakamoto.
Bitcoin has no throat to choke. ~ Elon Musk.
Blockchain, cryptoassets , and DeFi.
A blockchain is a globally shared transactional database. It allows for the transfer of value on the internet without relying on an intermediary.
It’s called a blockchain because the data is structured in form of blocks that are linked together forming a chain.
The data is stored on several computers or nodes that are globally distributed, unlike a traditional database where the data is hosted on a single server. This makes a blockchain decentralized — no single point of failure.
Each node in the network has a full record of the data that has been stored on the blockchain since its inception. For Bitcoin, the data is the entire history of all Bitcoin transactions.
If you want to change something in the database, you have to create a transaction that has to be accepted by all nodes in the network.Once a transaction has been added to the blockchain, it cannot be mutated or deleted.
Every transaction in a blockchain network is timestamped.
Blockchain has a wide area of use-cases that range from cryptoassets like bitcoin to Decentralized finance, voting, and supply chain management.
Why I am betting on Crypto
I made my first income ever back in 2015 when I was just 15 yrs. My job was to analyze football matches and sell my predictions to gamblers who knew little about soccer. The deal was, I offer my predictions and they stake with at least 10 dollars. If my predictions were correct, they would give me a share of the winnings, usually 15%-30%. They were incentivized to pay because they would need more predictions. If my predictions were wrong, they would never contact me again, and I’d lose the client.
I would meet my 'clients' through Facebook and they would pay me via Mpesa. Mpesa and the internet enabled me to have an occupation one would never have dreamt of a decade before. It also allows for mobile savings, loans, and risk-sharing as it’s easy to receive or send money whenever anyone is in need, and so on.
A 2016 survey found that access to the Kenyan mobile money system M-PESA increased per capita consumption levels and lifted 194,000 households, or 2% of Kenyan households, out of poverty.
If I were to expand my business and accept international clients, my remittances would be cut down considerably. This is due to what Michael Hudson termed dollar hegemony in his book, Super Imperialism. If I want to receive money from a client in Nigeria, the client would have to convert her naira to U.S dollars first and then I would have to exchange the dollars for Kenyan shillings. I could incur a cost of up to 25% of my remittance for the exchange alone.
Using bitcoin, I could receive a borderless payment on my phone, incurring no added fees.
When a Senegalese fisher wants to sell to an Indian buyer. The rupee from the buyer gets exchanged into euros in a French currency market. The French treasury assumes the euros and credits the amount in CFA francs to the Senegalese account at the BCEAO, which then credits the fisher’s account domestically. Everything runs through Paris. Bitcoin gives you politically neutral money, one that’s not dominated by a single country. That’s what freedom means.
Decentralized Finance (DeFi)
More than a third of the world’s population does not have access to banking services. Most of these are from developing nations. Some reasons people remain unbanked are distance to access to banking services, documentation requirements, and mistrust of financial institutions.
Decentralized finance - commonly referred to as DeFi is a system by which financial products become available on a public decentralized blockchain network, making them open to anyone to use, rather than going through middlemen like banks. DeFi Products let you borrow, save, invest, trade, and more.
Advantages of DeFi.
Unlike traditional finance where you need a bank account and formal identification to access financial products, with DeFi, all one needs is an internet connection, no one cares if you have an ID, a bank account, or any other crap the traditional system asks for.
Access to decentralized applications is open and unfettered. Transactions on these services are unstoppable. More concretely, nothing can stop me from sending Bitcoin to anyone I please.
Since DeFi applications are built on top of open blockchain networks, every transaction is recorded on the blockchain thus allowing you to evaluate and understand what a financial product does from day one. This would prevent stuff like the 2008 mortgage crises or the recent Cytonn investment scandal where investors in Kenya lost up to $14 million.
While payments can take days in traditional finance due to the manual processes involved, in DeFi transfer of assets happens in just a few minutes.
Most elections in Africa are marred by fraud, which often leads to protest, violence, and fragility. A blockchain can record and report votes and prevent many types of voter fraud in elections. For example, each voter could be given a token and the contestants a wallet. The voters can then deposit the tokens in the contestant's wallet they wish to elect. In a fair system, elections allow for increased participation and the responsiveness of political leaders to the needs of the electorate. Just what we need.
Blockchain and the end of corruption.
Corruption undermines growth and development. More than half of all bribery cases occur to get public procurement contracts. Procurement information is not readily available, untrustworthy, or changed. Blockchains are used to create a decentralized record of all transactions that cannot be tampered with. We can store all procurement transactions and contracts in a blockchain and since it allows anyone to view the record, it would be almost impossible for corrupt activities to go unnoticed.
You will find toe-curling stories of almost anything you can imagine. For all the tales of economic hitmen and oppression from developed nations, you’ll find some equally convincing stories of how these nations are movers of civilization and why we should emulate them. To lay blame is stupid. We need a way forward which is not zero-sum. We have several challenges to deal with, including a struggle for financial inclusivity, the fight against corruption and election fraud. I believe we have just the right tool for the job.
With all the hype and confusion surrounding blockchain and cryptoassets, I understand why one can be sceptical. However, if you are in a developing nation, there is a chance you are “off the grid”, i.e., access to competently operated traditional services is limited. If you don’t have a bank account but have access to internet connection, with crypto you can:
Download a crypto wallet.
Buy crypto - learn how you can buy crypto without a bank account here
Earn interest by lending your assets via third-parties such as Compound.
Note: A cryptoasset is only as useful as the network it enables. Make sure to do your due diligence on any token you wish to invest on. Research and be sceptical. This writeup offers a great overview on crypto.
Kenya is leading crypto adoption in Africa and the world. I believe crypto will grow to become as ubiquitous as Mpesa, and its impact on our lives will be much more profound. Besides, in a few years we'll be able to conduct fair elections on the blockchain and also have open procurement models that are corruption-free. I have a reason to be hopeful, and so should you.