Category Archives: Global Stories, Local Impacts

Globalization narratives invariably have local components, either in their origins or in their impacts. This section focuses on stories that illuminate the impact of the global on the local–or the inverse.

What the Brexit Vote Teaches Us about Direct Democracy (and the Future of Democracy)

Yesterday’s Brexit vote was widely seen as a referendum on referenda. The populist right across Europe now routinely is demanding to take issues directly to the people in order to bypass the parliamentary process which has not produced desired outcome–a process The Economist recently dubbed Referendumania. The United Kingdom Independence Party (UKIP) has demanded for years that important issues like EU membership should be voted on by the electorate. Prime Minister David Cameron gave in to the demands in order to win the last election, feeling confident that he would win the vote and thus quiet the right-wing opposition. The gamble backfired: Cameron lost both the vote and his job.

The price Britain will pay for playing with the populist fire is potentially steep. Scotland voted overwhelmingly in favor of staying in the EU and now wants a second vote on independence. In Northern Ireland, the vote opened up old confessional lines of cleavage: Protestant Unionists voted for the Brexit, Catholics against. And the City of London may lose its position as premier financial market in Europe. Most importantly, the British economy will face an uncertain future. The EU is unlikely to sign off on free trade arrangements of the sort Norway and Switzerland enjoy because such a deal would encourage other member nations to leave as well. Furthermore, it took Switzerland a couple of decades to arrive at its current, admittedly cushy relationship with the EU.

Governments in other European countries no doubt will try to avoid this populist trap. This will enrage the masses even more, and demands for more democracy will become ever louder. In the wake of the British vote, the German right-wing party Alternative for Germany (AfD) has demanded more direct democracy for Germany. Marine Le Pen, the leader of the Front National, promised a referendum on the Frexit if she is elected president of France next year. And the Dutch right-wing leader Geert Wilders announced a push for the Nexit.

One real concern is that this type of referendum is susceptible to lies and deception. The Brexit campaign was run entirely as a post-truth campaign. Its most visible element was the Vote Exit campaign bus run by Boris Johnson, the former mayor of London and possible successor as prime minister. The inscription on the side of the bus made a bold claim: “We send the EU £350m a week.”

False claim on Boris Johnson’s Vote Exit campaign bus: “We send the EU £350m a week.” (Reuters)

As it turns out, the figure is wrong. It disregards the massive rebate Britain has received since 1985, and it does not include the EU payments that flow back to British institutions. But facts just did not matter in this campaign that was ruled by anger and fear and dominated by issues like immigration and sovereignty. Michael Gove, co-chair of the Leave campaign and current minister of justice, was asked to name a single independent economic authority who thought Brexit was a good idea. His response: “I think people in this country have had enough of experts.”

The counter-example to this narrative is Switzerland. Swiss voters go to the ballot box four times a year to decide three or four issues each time. Direct democracy in Switzerland has grown organically into the fabric of Swiss politics since the late 19th century. Both the government and the media generally do a good job to inform the public on the facts and on the pros and cons of the issues to be voted on. As a result, Switzerland has developed a polity that is structured from the bottom up and that allows voters to participate in decision-making processes on all levels of government. This system has produced an educated and knowledgeable electorate that is much less likely to be fooled by deceptive populist rhetoric.

Political systems create political cultures as much as political cultures shape political systems. Countries like Britain and Germany have a strong tradition of parliamentary democracy. Voters elect leaders who represent them in parliament that in turns forms a government which it controls. This mechanism does not really allow for an alternate decision-making process, for instance in the form of a referendum, as the political culture does not have the tools to deal with it. A system that works exceedingly well in Switzerland therefore could turn toxic for Britain, with the potential of doing the same in other European countries.

There are two reasons why the current populist anger is directed at the European Union and why referenda could accelerate the unraveling of the EU. The European Union has been an elite project. It has done a poor job explaining to Europeans how it has brought peace and prosperity to a continent that had been ravaged by two world wars, how it helped Spain, Portugal and Greece transition away from fascist dictatorships, and how it supported countries formerly in the Soviet bloc both politically and economically. But it also created institutions that are not transparent and that delegate too many decisions to bureaucrats in Brussels. And it has thoroughly mismanaged the Greek debt crisis. Thus it has become an easy target for malcontents.

The second reason is that Globalization has contributed to the de-industrialization of Western Europe (as well as North America). This has created massive wage stagnation and chronic unemployment among the working classes, and it has spawned unprecedented levels of global migration. European populists successfully managed to blame the European Union for both. In reality, 1.5 billion workers, mostly in China and India, have joined the global labor market over the past quarter century which has created extraordinary pressures. On top of that, the digital revolution has begun to make human labor redundant–a trend that may lead to massive unemployment in developed societies in the future. The EU is responsible for none of this: British voters will soon discover that leaving the EU will not lessen the competitive pressures on British industry, nor will it ease migration pressures.

Western democracies have become vulnerable to populist deception. Boris Johnson will be rewarded for his deceptive politics by inheriting the job of Prime Minister. He also wrote the playbook for Donald Trump on how to win a fact-free campaign that is not restrained by the limitations of truth. Maurine Le Pen is favored to win the French presidency next year. And Angela Merkel, the lone beacon of reason in European politics, may well stumble over the populist furor raised by the refugee crisis. Direct democracy which has given Switzerland unparalleled political stability and economic success may also become the political idea that will give the populist right the tools to undo the European Union.

 

FIFA Corruption and Small State Soft Power

Vladimir Putin made a good point in his condemnation of the indictment of 14 FIFA officials by the US Department of Justice this week: is this any of their business? Yes, FIFA is a corrupt organization. Yes, many members of FIFA’s all-powerful Executive Committee have been implicated in a number of corruption scandals. Yes, Putin has skin in the game because Russia was awarded the 2018 World Cup as part of a rigged dual bidding process in 2010 that also gave Quatar its controversial 2022 World Cup–a process that allegedly took corruption to a much higher level and that now is under investigation. Furthermore, given his aggressive and deceptive policies against sovereign nations formerly in the Soviet orbit, Putin is not a likely candidate to occupy the moral high ground in issues other than riding topless through the Siberian tundra.

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FIFA President Sepp Blatter in 2010 disclosing Russia and Qatar as hosts of the 2018 and 2022 Word Cups (BBC News)

Yet, Putin makes a point worth exploring. Here is what Putin said about the arrested FIFA officials: “They are accused of corruption – who is? International officials. I suppose that someone broke some rules, I don’t know. But definitely, it’s got nothing to do with the USA. Those officials are not US citizens. If something happened it was not in the US and it’s nothing to do with them. It’s another clear attempt by the USA to spread its jurisdiction to other states. And I have no doubt – it’s a clear attempt not to allow Mr Blatter to be re-elected as president of Fifa, which is a great violation of the operating principles of international organisations.”

Let’s look at Putin’s argument in a reversed order. So how do international organizations work? They are incorporated in the country where they are based. FIFA is incorporated in Zurich, Switzerland, as a tax-exempt “Verein”–a club or association–with few financial reporting requirements. Except that there balance sheet has a few more digits than that of the local stamp collector club. De facto, FIFA operates like a large global, post-national corporation even though its members are continental and national federations. It has become a money-making machine even though on paper it is just a non-profit club. So the legal structure within which FIFA operates is woefully inadequate for the kind of business it does.

The next question is: if FIFA really is so corrupt, and not even Putin denies this, why would the host country, Switzerland, not investigate FIFA and bring charges?  For starters, corruption per se is not a crime under Swiss law. If corruption leads to unfair competitive practices, this can be prosecuted under the Unfair Competition Act. (Ironically, the Swiss parliament currently is considering the implementation of an anti-corruption statute which actually may make a difference in the future.) This is one reason why over two dozen major international sports organizations, including the International Olympic Committee, are based in Switzerland. (Other reasons are reliable and secretive financial services, an excellent transportation infrastructure, a pleasant environment, and good shopping for their wives.) They have created a culture of collusion with Swiss authorities who are going easy on these organizations in return for them doing business in Switzerland. Switzerland sees the presence of these organizations as a source of soft power–a small state specialty the Swiss are proud of. There are cases of Swiss authorities backing off when the organization under scrutiny threatened to leave the country. In short, the Swiss authorities never would have investigated FIFA on their own, particularly as the FIFA president, Sepp Blatter, is a Swiss national.

There is a striking over-representation of small states in the Executive Committee, FIFA’s governing body. This is part of the FIFA system. The Cayman Islands, for instance, did nothing to investigate Jeffrey Webb, one of the vice presidents who now is suspended. It is not in the interest of small states to investigate its citizens who sit on important international boards and thus give their countries outsized influence. Of the seven FIFA officials arrested in Zurich this week, six represent small states. And then there is Teflon Sepp, the FIFA president, who so far miraculously has escaped prosecution. It is instructive, in this context, that the US has taken Chuck Blazer, its own corrupt FIFA official, out of circulation. He now is an informant for the US government.

This brings us back to the original question: what business of the U.S. is it? The indictments were brought under the Racketeer Influenced and Corrupt Organisations Act (RICO) of 1970. This implies that FIFA is treated as a Mafia-like criminal organization. As long as just one aspect of the crime, like wire fraud, originates in the U.S., the entire web of crimes can be prosecuted under U.S. law. This hook allows U.S. authorities to go after crimes that were largely committed abroad. The hook here is the Confederation of North, Central America and Caribbean Association Football (CONCACAF), a regional FIFA suborganization, that is based in Miami. Not surprisingly, most of those indicted are indeed associated with CONCACAF.

This type of aggressive extraterritorial jurisdiction is mostly seen with great suspicion and contempt in other countries as it tends to show U.S. authorities as overzealous, overbearing and overreaching–even though soccer fans would be glad to make an exception here. Over the years, such extraterritorial prosecutions often are directed against small states and its citizens. A good example is the U.S. pursuit of Nazi Gold in Switzerland in the 1990s–at a time when Swiss neutrality no longer was of use to the U.S. So the question remains if the U.S. prosecution really will be able to uproot FIFA corruption. The fact that Blatter himself was not indicted makes me think that it won’t. And the other question is how long it will take for small countries to feel trampled by this very assertive U.S. prosecution. So far, authorities in Switzerland have cooperated–hence the Zurich arrests. But it is unclear how long they will. Ironically, then, the solution may have to come from within FIFA, as Blatter himself demanded today. What Blatter can’t see is that this only has a chance of working without him as president.

So Why is Walgreens Moving to Switzerland? (And What Can We Do about It?)

The other day, a petition from Campaign for America’s Future ended up in my in-box. Its subject line read: “Why is Walgreens Moving to Switzerland?” Of course, Walgreens is not moving to Switzerland. My Walgreens still will by around the corner from my house. And most corporate jobs will remain in Chicago.  The first line of the e-mail reads: “Walgreens is an American success story.  Or, at least, they used to be.” Wrong again: it still is, and will remain so even after Walgreens moves its corporate headquarters to Switzerland. It just will not pay taxes in the US anymore. But that, too, is very American. Ever since Ronald Reagan declared the government the enemy of the people, paying taxes no longer is a civic virtue. Avoiding taxation altogether is considered smart because the money would only serve to bloat the government.

The planned move by Walgreens was precipitated by its merger with Alliance Boots, a British drugstore chain. Alliance Boots moved its corporate headquarters to Zug, Switzerland, in 2008 which caused the very same discussion about corporate citizenship in Britain. Alliance Boots never had more than a mailbox in Zug. According to The Guardian, the move comes at a cost of £100 million to the British taxpayer every year. In 2013, the company headquarters were moved to Bern as Alliance Boots already had operations there. While Zug is the quintessential corporate tax haven, the move to Bern, which was missed by Bloomberg News, does little to change the story. A move to Switzerland by the Walgreen Corporation would have similar benefits. A few weeks ago, analysts from UBS, a global bank based in Switzerland, claimed that stocks in the Walgreen Corporation would rise 75 per cent if corporate headquarters were to be moved to Switzerland.

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Modest multi-party office building at Baarerstrasse 94 in Zug. Alliance Boots was based here until 2013.

Clearly, Walgreens does not want you to read this. In 1904, Charles Walgreen traveled from his small-town home in Dixon, Illinois, to Chicago and opened a pharmacy and soda fountain. It is the quintessential American success story, but today’s corporation has little to do with its humble beginnings. Walgreens want you to believe that they are an American company that pays their taxes, that they are being a good corporate American citizen, and that they live up to their iconic status as a quintessential American corporation. In a wicked way, of course, they are: like so many other American corporations, they are moving their corporate headquarters offshore.

Large corporations are de-nationalized entities which nimbly navigate the global financial and fiscal system while maintaining the fiction of national citizenship for public consumption. Two years ago, Gregory D. Wasson, the chief executive of Walgreen Corporation, sought tax breaks from the state of Illinois the company is still based. At that point, he stated: “We are proud of our Illinois heritage. Just as our stores and pharmacies are health and daily living anchors for the communities we serve, we as a company are now recommitted to serving as an economic anchor for northeastern Illinois.” At the time Wasson made this statement, the merger with Alliance Boots was essentially a done deal.

Walgreens is not the first and probably not the last US corporation to move their headquarters overseas for tax reasons. But Walgreens is different in that it is part of daily life in the US. My Walgreens is not just a pharmacy, I go there as well when I am out of dish detergent or beer. When Transocean, the owner of the Deepwater Horizon platform which caused the huge oil spill in the Gulf of Mexico in 2010, moved its corporate mailbox from Houston to Zug in 2008, nobody took notice. But Walgreens lives off he daily contact with American consumers, and in that it is seen as a quintessentially American brand that cannot be relocated so easily. And herein lies the chance to create public pressure not just to prevent Walgreens from moving to Switzlerland but to expose the fraudulent global scheme of corporate taxation.

So what does Campaign for America’s Future want you to do about this? They want you to send them ten bucks so they can “expose this scam, pressure Walgreens to do the right thing, and shut down the tax loophole that allows this to happen.” You can also sign their “Tell Walgreens: Don’t Desert America” petition. While I cannot argue against closing tax loopholes, this approach is merely cosmetic.

In 1998, the OECD published a report entitled Harmful Tax Competition: An Emerging Global Issue which arrives at the stunningly simple analysis: “Where activities are not in some way proportional to the investment undertaken or income generated, this may indicate a harmful tax practice.” Ultimately, the OECD had to abandon its efforts to develop non-abusive global taxation standards due to resistance from the wealthiest countries. The OECD report makes it clear that it is unethical for Swiss cantons (and other entities) to allow foreign corporations to incorporate and that it is harmful for tax jurisdictions where the actual economic activity of these corporations takes place. This practice particularly hurts developing countries, as Nicholas Shaxson argues in Treasure Islands (2012), that as a consequence become more dependent on foreign aid. Yet, fighting individual predatory jurisdictions, like many Swiss cantons, would only be marginally productive as corporations easily can move their mailbox to a different, equally beneficial jurisdiction.

One of the OECD recommendations was that a global standard should be established by which corporations should be taxed where their economic activity is taking place. We need to vigorously push for this standard, and we need to seek a fundamental change in how corporations are taxed globally. Corporations need to be taxed where they are producing goods and services and where they are using the infrastructure, not where they are having their corporate headquarters, i.e. their mailboxes. Such mailbox headquarters create a windfall for the host tax jurisdictions which in turn allows them to drop the corporate tax rates even more to attract even more corporate mailboxes. The Swiss canton of Zug is a textbook example for that.

The only real solution, ultimately, is to end tax competition between jurisdictions. In competitive tax environments, corporations win and taxpayers lose. Corporations and their lawyers always can move more nimbly than politicians and the polities they represent. Corporations can move their mailboxes as they please, pick where they pay taxes, and play tax jurisdictions against each other. Tax jurisdictions cannot move their citizens or their infrastructures. Unless we change the very system of how corporations are taxed, the Walgreens of this world will always have their way and citizens will lose out.

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One of many mailboxes at Baarerstrasse 94 in Zug: Künzi Treuhand AG. About 50 corporations and business groups receive their mail here–meaning that this is where they are legally incorporated. One of their advertised specialties: helping foreign corporations set up and manage corporate headquarters here. This is big business, and there are many such companies in Zug.

 

Switzerland Discovers the Ugliness of Offshore

In recent days, Johann Schneider-Ammann, the Swiss Minister of Economic Affairs, has become the target of criticism for the tax dealings of the Ammann Group in Langenthal, the company he led between 1987 and 2010. From 1999 to 2010, Schneider-Ammann served in the National Council, the lower chamber of the Swiss parliament. He only gave up control of the Ammann Group when he became a member of the Swiss Federal Council, the federal cabinet, as Minister of Economic Affairs in 2010.

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Official 2014 picture of the Swiss Federal Council. Schneider-Ammann is on the left.

The Ammann group was founded in 1869 by an ancestor of Schneider-Ammann’s wife and has been specializing in the production of construction machines. Since 1931, Ammann has been the exclusive importer of Caterpillar products to Switzerland. Today, the company has a worldwide employment of about 3,700–2,500 of them abroad.

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Ammann road construction machines (Pavel Ševela / Wikimedia Commons)

One of the allegations, first reported by Swiss TV in late January, is that the Amman Group sold Caterpillar equipment to Iran after the 1979 revolution, thus circumventing the US embargo. Two retired truck drivers, Werner Zwahlen and Robert Z’Rotz, claim to have delivered many truckloads of Caterpillar products to Teheran and Baghdad between 1975 and 1984: “We picked up the machines and spare parts in Belgium and the Netherlands and brought them to Ammann in Langenthal. There we got new papers and, without ever unloading, drove on to Teheran and Baghdad.” As Schneider-Ammann entered the company in a leading position in 1981, it stands to reason that he knew about this scheme–which to be sure was not illegal under Swiss law.

The more serious allegation is that the Ammann Group set up offshore schemes to evade–or avoid–taxation in Switzerland.  In 1976, the Ammann Group founded Manilux SA, a financial holding corporation, in Luxemburg. In 1996, they founded another financial subsidiary, Jerfin Ltd., on the Channel island of Jersey. Schneider-Ammann himself was listed as the chief of Manilux which had neither employees nor offices in Luxemburg, nor elsewhere, even though 250 million Swiss Francs were invested there. Manilux and Jerfin were dissolved in 2007 and 2009, respectively, and the funds transferred first to Jersey and then back to Switzerland.

In an interview with the Zurich daily Neue Zürcher Zeitung on February 8, Schneider-Ammann confirmed the basic facts but denied any wrongdoing: “This was about reserves which we optimized in terms of taxation. The funds were intended for the strategic development of the international Ammann Group and were used to protect jobs. Everything was legal, everything was transparent, the taxation authorities had complete insight at any time. They confirmed this to the company again on Friday.” Entrepreneurs today, according to Schneider-Ammann, have to resort to such offshore schemes because companies are part of a global competition where this is standard procedure: “If you want to secure domestic jobs in an international corporation, it is legitimate to optimize taxes. From an entrepreneurial perspective, it would be a mistake not to take advantage of all legal options.”

While many corporations set up much more sophisticated tax avoidance schemes with a more complex web of subsidiaries in numerous jurisdictions, this is a textbook example for how offshore works. “Optimizing” tax liabilities becomes part of what corporate leaders do in order to increase profits or just to remain competitive. At the other end of the bargain, jurisdictions compete to offer the most attractive conditions to get companies to incorporate there. This is the mechanism Schneider-Ammann described quite frankly: “The Ammann group has to compete in a brutal environment. Before the turn of the millennium, this type of a tax break did not exist in Switzerland. That is why it was recommended to us to invest money in offshore corporations to shelter it from taxation. In the last few years, similar tax shelters were created here [in Switzerland]. This is why we brought the money back to Switzerland.”

This is how the offshore race to the bottom works: corporations create shell companies to move their money to the jurisdiction that offers the most advantageous conditions–and ordinary citizens all over the world shoulder an ever-increasing percentage of the tax burden. Jurisdictions in turn adjust their tax schemes to make their location even more attractive to corporations. When Switzerland matched the conditions offered by Luxemburg and Jersey, repatriating the accounts made business sense for the Ammann Group.

So why did revelations about the business practices of their Minister of Economic Affairs create such a stir in Switzerland to the point that some demand his resignation? Switzerland is one of the pioneers of the offshore system and for well over 80 years has created offshore opportunities for corporations and individuals who are based elsewhere. Mr. Schneider-Ammann has delivered a high-profile example for how offshore looks from the point of view of the jurisdiction that gets cannibalized–a perspective the Swiss are not used to seeing. And all of a sudden, it is very easy to comprehend just how wrong and unjust this system is.

The question is not just whether Mr. Schneider-Ammann’s tax schemes were legal but whether a corporate leader who actively pursued offshore strategies to avoid paying corporate taxes in Switzerland can be a trusted guardian of the common good and more specifically is fit to be its Minister of Economic Affairs–who sits at the table when tax issues are discussed with foreign entities. And just perhaps the offshore system has become odious enough for even the Swiss to understand that the global offshore system they helped create–and from which they profited immensely–may be legal but is morally corrupt.

 

 

Eusébio, A Life in the Shadows of the Colonial Past

Eusébio was one of the heroes of my childhood. Watching the 1966 Soccer World Cup in England on our neighbor’s black and white TV set  in Switzerland, all we wanted to see is Eusébio. Eusébio was the dominant player of that tournament, Pelé notwithstanding, and led the Portuguese squad to the third place. We admired the elegance of his play, his speed, and his superb ball control. It is because of players like him that we call soccer the beautiful game. Eusébio died on January 5, 2014.

Eusébio, whose full name was Eusébio da Silva Ferreira, retired from soccer in Portugal in 1975 to play in North America, and I did not think about him much anymore after that. Until 2012, when I took a walking tour through Mafalala, a poor slum of Maputo, the capital city of Mozambique. As I walked across a gravel field, my guide told me that this is the place where Eusébio learned to play soccer and that Eusébio grew up in Mafalala. I was completely surprised–I always had thought of him as Portuguese, and the fact that he was black somehow went unnoticed during my childhood.

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Eusébio learned to play soccer on this field in Mafalala, Maputo.

Eusébio’s biography is marked by the de-facto Apartheid regime Portugal had implemented in Mozambique at the tail end of Portugal’s global empire. It lasted more than half a millennium and only ended in 1975 when Mozambique became independent from Portugal. The center of Maputo, then called Lourenço Marques, was reserved for whites only. In the 1950s and 1960s, the Portuguese built a large number of concrete highrises along stately avenues in the center of Maputo for a substantial Portuguese population–this is why it is referred to as Concrete City sometimes.

Blacks were not allowed to live there and were relegated to slums without any modern infrastructure. Mafalala was adjacent to the city center and became the focus of black intellectual life during the final decades of the colonial regime. It also was the center of resistance against white rule, and many leaders of FRELIMO, the Marxist liberation movement that seized power after independence, lived in shacks in Mafalala.

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Joaquim Chissano (b. 1939), the second president of Mozambique, used to live in the light blue house.

Eusébio moved to Lisbon in December 1960, at age 18, to play for Benfica. Sporting Lisbon, its cross-town rival, had first dibs on him as he played in their youth organization in Maputo. But Benfica outsmarted Sporting, and apparently they convinced Eusébio’s mother with a good bit of cash. Regardless the circumstances, for a kid from Mafalala to play for one of the major European clubs was a dream come true.

In Maputo, Eusébio was subjected to open racism imposed by the Portuguese colonial regime, but he was part of a majority community that gave him support. While the racism in Lisbon may have been less overt,  he had no community in Lisbon. So soccer became his community–which he worked for until the end of his life. He remained an untiring soccer ambassador for both Portugal and Benfica, his club, until his death. When Sepp Blatter, the FIFA boss, in 2011 stated that black soccer players just should shrug off racism, thus causing a scandal, Eusébio essentially agreed.

But we know that his 15 years at Benfica were tough, in spite of the huge sportive successes. Portugal then was a fascist state, ruled by António de Oliveira Salazar (1889-1970) and his successor Marcelo Caetano (1906-1980), until the Carnation Revolution of 1974 swept away the dictatorship–which led to the independence of all Portuguese colonies in the following year. The established society always saw Eusébio as an inferior African, and Eusébio also endured racist attitudes at Benfica. But he never talked publicly about his experience with racism–in spite of the fact that he agreed to be ambassador against racism for FIFPro, the global association of soccer players.

His pay at Benifica was far below of what top players elsewhere in Europe earned. Clubs like Inter Milan were interested in him, but Benfica demanded unreasonable amounts of money to release him. Apparently, Eusébio personally appealed to Salazar the dictator to get permission to leave. But Salazar denied the request with the justification that Eusébio belonged to the Portuguese people. Dictators are lousy at understanding irony. And by the time the regime fell, he was 35 and no longer of interest to top European teams.

Eusébio’s biography has a lot more layers of complexity than I possibly could have suspected as kid who admired him. As a victim of a brutal colonial regime, he moved to the racist “motherland” and sought his fortunes there. He never moved back to his native Mozambique where he was admired as a national hero, although he visited often.

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Street sign and informal portrait of Eusébio in Mafalala.

It appears that the issue of race was like a festering wound to him–a topic he never wanted to discuss publicly. Donald McRae in a 2006 piece in The Guardian describes Eusébio as a conflicted individual who was haunted by the ghosts of his past and struggled with issues of identity and belonging. Apartheid and the Portuguese colonial rule are gone, but their impacts on lives are real and ongoing. Eusébio is exhibit A. In its obituary, The Guardian writes: “Eusébio was the greatest African footballer in the history of the game.” While this is true, I would have never thought of it this way. The story is more complicated than that.

 

 

Why the Crash of a Mozambican Plane in Namibia Matters

On November 29, 2013, flight 470, an Embraer 190 of Linhas Aéreas de Moçambique (LAM; Mozambique Airlines), crashed in a remote area of Namibia en route from Maputo to Luanda, killing all 33 on board. This event barely registered in world media. And maybe this a good thing.

Of course, we know the pattern of Western under-reporting about Africa: an event in Africa does not exist in the Western media unless it is related to atrocities or terrorism or it directly impacts Western interests. On the same day a police helicopter crashed into a pub in Glasgow, Scotland, killing eight. That accident was on top of the news in the US for two days.

Aside from the loss of human life, the accident is tragic because Africa urgently needs to expand its air transportation infrastructure in order to develop economically and become more competitive in international business. A report by Mathias Haufiku and Fifi Rhodes on the allAfrica.com web site explains the connection: “The accident took place at a time that African countries are working hard to shed off the negative reputation of accident-prone African airlines, the majority of which are still banned from flying over European Union airspace due to stringent EU safety standards. Currently there are only five African countries and their airlines, which are permitted to fly over European airspace, of which Namibia is one.”

The African Airlines Association (AFRAA) claims that the EU bans most African carriers by deeming them unsafe in order to block African airlines from competing in highly profitable routes connecting Africa and Europe and thus to give European carriers an unfair competitive advantage. For example, the European Union withdrew landing rights not just from LAM but from all airlines based in Mozambique in 2011. In other words, EU restrictions hit an entire country due to perceived deficiencies in its regulatory system, not just a single airline that happens to have an outstanding safety record–until last week that is. As a consequence, LAM had to give up its Maputo to Lisbon route. Today, a TAP flight to Lisbon is the only direct flight to Europe.

This is one of the reasons why it is difficult for African airlines to be competitive on the global market–aside from lack of capital and a very small domestic customer base of businesses and affluent individuals. Governments often protect their airlines through regulatory schemes–which removes the pressures to be competitive. But heavy regulation also turns out to be a huge impediment for air travel. National airlines like LAM still have monopolies which make air travel very expensive.

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Embraer ERJ-190AR of Linhas Aéreas de Moçambique at Nampula airport (2012).

Mozambique tried to escape this vicious cycle. LAM leased a Boeing 737-500 and purchased a brand-new Embraer 190–the very plane that crashed last week–in November 2012 to bring the total of planes operated by LAM to seven. At that occasion, Paulo Zucula, the Mozambican Transport and Communications Minister, announced that Mozambique’s air space was being liberalized. Just two months before, his deputy Manuela Rebelo had stated that the liberalization of Mozambique’s air space had to wait until LAM  could “receive new equipment as it is currently unable to withstand competition.” But Zucula insisted that the two new planes now satisfied this criterion and that LAM was strong enough to compete in the market. But this now is very much in question.

Reliable, safe, and inexpensive air transportation is essential for Africa’s economic development by enhancing trade relations, helping to cultivate personal ties, and promoting tourism. Distances in Africa are vast, road infrastructure often poor, and rail infrastructure spotty to largely non-existent. Air travel still is the domain of a privileged few in most African countries which has a negative impact on the mobility and productivity of their populations.

On a trip to Mozambique in 2012 I had the option of a bus ride of over 48 hours on partly unpaved roads or an expensive two-hour plane ride on LAM from Maputo to Nampula–and back to Maputo. My decision was quick and easy, and the credit card took care of the rest. But for the middle class in Mozambique, this would not have been a likely choice as the ticket was expensive even by Western standards. The flights were highly uneventful–on-time departures, professional service, perfect take-offs and landings. But then I had no idea how well the pilots were prepared for emergency situations and how well the plane was maintained.

Regardless of the cause of this plane crash, airplane safety standards in many African countries are still not up to acceptable standards, and even though the cause of the crash has not been determined at this writing this crash may have “cast fresh doubts over Africa’s aviation safety record.” But many African countries have made great efforts to improve the safety of their air transportation systems. And the US government has tried to improve the air transportation infrastructure in a number of African countries through its “Safe Skies for Africa” program, launched by President Clinton.

Most African airlines are still not ready to be exposed to competitive pressures, including competitive pricing which is a prerequisite for developing a mass market. This is why the 2012 launch of Fastjet, the first African budget carrier with a hub in Dar es Salaam and Western capital support, is a real opportunity for Africa.

Unfortunately, the crash of LAM 470 creates a setback, in terms of demonstrating a sustained safety record in Africa, in terms of capacity to raise capital for new and innovative airlines,  and in terms of developing a market for airline seats, both domestic and international. LAM always could boast an impeccable safety record. This has changed now, with potentially serious consequences for the viability of LAM and for air transportation in Africa. This is why it is perhaps a blessing in disguise that this accident went largely unnoticed in the Western world.

 

Update 12/22/13: The preliminary investigation indicates that the pilot locked himself into the cockpit when the co-pilot had temporarily stepped out and intentionally crashed the plane. While this may point to a problem with pilot screening and training, this does not change the basic thrust of my argument.

In Mozambique, China is Encroaching

The Chinese presence in Maputo is subtle, yet noticeable. For instance, the Chinese Anhui Foreign Economic Construction Group (AFECG) just built a shiny new international terminal at Maputo airport, and the new domestic terminal should be open by now as well. When I was in Maputo in summer 2012, the small old domestic departure lounge felt positively crowded while the new international departure area was cavernous and empty. The only things missing now are flights and passengers–at this writing Maputo airport has only 19 daily departures. So thanks to the Chinese, there is ample room for growth. Evidently, the Chinese are planning ahead.

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Terminal building at Maputo airport, built by the Chinese. (Photo: Ryan Kilpatrick, Flickr, 2012)

Chinese contractors have also been building many roads, government buildings, public facilities, such as the national parliament building and the national stadium, but also commercial buildings. About 30 Chinese construction companies have a base in Maputo. Many projects were built free of charge or financed with soft loans from the Export-Import Bank of China. Mozambique also is an important trade partner. The Chinese have mostly imported agricultural and fisheries products from Mozambique and exported manufactured goods and machinery to Mozambique in return. But in the last few years, they have become more aggressively engaged in logging and in the extractive industries–as is the case in other African countries.

China’s involvement with Mozambique has grown sharply, as Lora Horta summarizes: “As China surges into Mozambique with sophisticated business relations and friendly aid, the former Portuguese colony’s traditional Western patrons are humbled.” One example is the recent exploration for gold by the Chinese Sogecoa corporation in Sofala province. But Chinese imports of Mozambican agricultural products, fisheries, and wood are sharply rising as well. The extraction of natural gas will commence in the near future (and India wants a piece of that action as well). A week-long trip of President Guebuza to China in May 2013 to meet government and business leaders accentuates the centrality of relations with China for Mozambique.

So the expansion strategy China pursues in Mozambique is quite evident. For over a decade, China has been engaged in projects designed to generate soft power, such as erecting stadiums and government buildings. Infrastructure projects followed suit, like roads, airports, and sea ports. In 2009, about a third of all road construction in Mozambique was being carried out by Chinese companies. Recent road construction efforts have been to pave roads along major transportation corridors, like the Nacala Corridor in northern Mozambique that connects the Indian Ocean port of Nacala with Malawi and Zambia.

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Highway N8 in the small town of Monapo (Nampula province); the N8 is part of the Nacala Corridor.

Creating a more reliable transportation infrastructure helps China usher in the next phase that has now begun: Chinese-controlled mining and agriculture projects designed to meet China’s massive needs for raw materials and food–although Brazil has emerged as a competitor in Mozambican agriculture and mining as well.

Perhaps the most visible Chinese project in Maputo, and also a part of a long-term strategy to expand economic ties, is the two-story Horizon Ivato supermarket and department store on Avenida Vladimir Lenine which is designed to give Chinese workers and business people a homey feel and give the local middle class access to a wider range of consumer goods, made in China of course.

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Chinese-built and operated Horizon Ivato Supermarket and Sogecoa Apart Hotel in Maputo (constructed in 2004).

The upper floors of this fourteen-story highrise are occupied by the Sogecoa Apart Hotel. Sogecoa is a branch of the Anhui Foreign Economic Construction Group (AFECG), a Chinese construction and mining company, established in 1992, which also built the airport and the stadium. The AFECG has set up branches in 22 countries in Africa, Europe, Asia, the Caribbean and in the South Pacific, with heavy emphasis on Africa. It has completed dozens of large and medium-sized projects, like this one, in more than thirty countries with aid from the Chinese government.

Corporations like AFECG often appear as state actors, and their corporate managers like to have their pictures taken with government officials. Photo-ops also arise when agreements are signed, for instance when a Chinese communist party delegation visited in 2011 to found a Confucius Institute in Maputo and to provide anti-malaria medications. Spreading goodwill and generating soft power in Mozambique is an ongoing effort. Soft loans or outright bribes to officials are common, as is extensive ajuda amigavel e gratuita (free and friendly aid) to benefit a broader segment of the population.

One such initiative to spread goodwill in Mozambique is the China-Mozambique “Journey of Brightness” launched in 2011–which is co-sponsored by the China Visual Impairment Prevention Office, the China Association for Promoting Democracy (I am not making this up–it even says so on the background in the image below), the omnipresent AFECG, and China Hainan Airlines. For six days, ophthalmologists from China performed cataract operations free of charge. Of course, frequent ceremonies and photo-ops are created to grease the Chinese PR-machinery.

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“Journey of Brightness” ceremony (2011): pictures with Mozambican leaders are prized.

Efforts like this one serve as a glossy veneer to distract from hard-core business moves that take place in a darker and shadier place, one without cameras and without a presence on the internet. What we see here are parts of a well-coordinated strategy by the Chinese government and its dependent corporations to become a dominant force in the economy of Mozambique and to exert greater influence over its government.

 

The Second Life of Used Toys

Nampula is a market town and trade center of half a million people in northern Mozambique; it recently surpassed Beira as the second-largest city in Mozambique. It is the economic hub of Northern Mozambique with an airport and other transportation infrastructure.

View of Nampula, Mozambique, from the air

View of Nampula, Mozambique, from the air

While walking down a major street close to the center of the city, I noticed a group of perhaps fifteen male workers unload a large container that was sitting on a truck. They were unloading large transparent plastic bags filled with used toys and children’s clothes. There was not much else going on (other than a wrecked ambulance standing in a ditch across the street which was witnessed by the locals with great consternation), so I started to take pictures.

Workers unloading used toys and clothes

Workers unloading used toys and clothes in Nampula, Mozambique

Moments later, a man of about 40 approached me; he made it clear that he was the person in charge of this operation, and he wanted to know why I was taking pictures. He was relieved that my interest was strictly academic–he had been concerned that I was a competitor checking out his operation. So he freely told me the story of the merchandise that was unloaded in front of my eyes. The toys and clothes were donated to churches in Europe by individuals; they in turn sold the collected items wholesale to a dealer who shipped them to Africa in a container. The container was put on a truck at a nearby seaport and brought to Nampula where workers were unloading the bags in front of my eye and bringing them into the warehouse where the items were sorted out.

Large container truck parked in front of the warehouse

Large container truck parked in front of the warehouse in Nampula, Mozambique

As he was light-skinned and spoke very good English (which is not common in Lusophone Mozambique), I asked him where he was from. His response surprised me: Sierra Leone. Of course I wanted the know where he was really from. (I understand that people with a hyphenated origin hate this question–but I felt that this was a relevant part of the story.) It turns out that his family of merchants was from the Middle East but had settled in Sierra Leone a couple of generations ago.

So what happens with these toys? After the toys and clothes have been sorted out, they go to markets all over the region to be sold. But in recent years, some buyers in the villages and small towns have become more market-savvy. They are quickly learning what the fashionable items and brands are in Europe and the U.S. because they have seen them on TV. So the distributor now has to sort all items into three categories for resale–trendy, average, and less desirable–and the pricing structure will have to reflect that.

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Roadside market in Mamudo, Nampula province, Mozambique

In the village of Mamudo, seventy miles east of Nampula, used clothes and other items are sold to the local population at a typical small roadside market. Villagers are unloading the same kind of plastic bags from a small truck, containing used clothes and other items. The toys and clothes appear to have reached the last part of the journey, where their second lives can begin.

There are three interesting angles to this story. The first is that donors in Europe unlikely understand what is really happening to their donated children’s toys and clothes. Rather, donors in Europe happily are left with the thought that their charitable donations are distributed to poor children in Africa for free. While churches presumably use the proceeds from the sale of donated goods for charitable purposes, the goods themselves cross over into the for-profit sector of the economy again. The trade in used merchandise is big business in Africa.

The second point is this: as the market in many African countries is flooded by cheap imports of donated used clothing, it is very difficult for the domestic textile industry to compete. Ironically, these donated goods hinder the development of domestic production and thus make many more locals dependent on development aid. While these donations by Europeans are well-intended, they actually become an obstacle to sustained economic development.

Youths in the small town of Mamudo, Mozambique

Youths in the small town of Mamudo, Nampula province, Mozambique

The third point is less tangible but equally important. How do T-shirts with imprints of Western brands and cultural icons impact these young people? What does this young boy think of this Marylin-Monroe-like seductive blonde on this chest? What does it teach him about consumerism that is unattainable to him, about racial hierarchies, and about the felt cultural, economic and political dominance of the West?