[Senate Hearing 106-258]
[From the U.S. Government Publishing Office]



                                                        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



                     U.S. GOVERNMENT PRINTING OFFICE
61-360 CC                    WASHINGTON : 2000




                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas                PAUL D. WELLSTONE, Minnesota
CRAIG THOMAS, Wyoming                BARBARA BOXER, California
JOHN ASHCROFT, Missouri              ROBERT G. TORRICELLI, New Jersey
BILL FRIST, Tennessee
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

                    SUBCOMMITTEE ON AFRICAN AFFAIRS

                    BILL FRIST, Tennessee, Chairman
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas                PAUL S. SARBANES, Maryland

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   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)

  


               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.
    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.
    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 long-term 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 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.
    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 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.
    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.
    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 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.
    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.
    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.
    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.

 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 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 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 
administration, 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 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 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.
    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.
    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, 
sub-Saharan 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.
    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 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 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 trans-Atlantic 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 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 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.
    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 6\1/2\ 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 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 
Polish-Americans 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.
    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 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, 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 
sub-Saharan 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, 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 agricultural 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 barriers 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 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 
6\1/2\ 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 HIV-AIDS 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.
    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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