Rebranding Africa

By BONO

Published: July 9, 2009

DATELINE: Imminent. About now, actually.

Soon, Air Force One will touch down in Accra, Ghana; Africans will be welcoming the first African-American president. Press coverage on the continent is placing equal weight on both sides of the hyphen.

And we thought it was big when President Kennedy visited Ireland in 1963. (It was big, though I was small. Where I come from, J.F.K. is remembered as a local boy made very, very good.)

But President Obama’s African-ness is only part (a thrilling part) of the story today. Cable news may think it’s all about him — but my guess is that he doesn’t. If he was in it for a sentimental journey he’d have gone to Kenya, chased down some of those dreams from his father.

He’s made a different choice, and he’s been quite straight about the reason. Despite Kenya’s unspeakable beauty and its recent victories against the anopheles mosquito, the country’s still-stinging corruption and political unrest confirms too many of the headlines we in the West read about Africa. Ghana confounds them.

Not defiantly or angrily, but in that cool, offhand Ghanaian way. This is a country whose music of choice is jazz; a country that long ago invented a genre called highlife that spread across Africa — and, more recently, hiplife, which is what happens when hip-hop meets reggaetón meets rhythm and blues meets Ghanaian melody, if you’re keeping track (and you really should be). On a visit there, I met the minister for tourism and pitched the idea of marketing the country as the “birthplace of cool.” (Just think, the music of Miles, the conversation of Kofi.) He demurred ... too cool, I guess.

Quietly, modestly — but also heroically — Ghana’s going about the business of rebranding a continent. New face of America, meet the new face of Africa.

Ghana is well governed. After a close election, power changed hands peacefully. Civil society is becoming stronger. The country’s economy was growing at a good clip even before oil was found off the coast a few years ago. Though it has been a little battered by the global economic meltdown, Ghana appears to be weathering the storm. I don’t normally give investment tips — sound the alarm at Times headquarters — but here is one: buy Ghanaian.

So it’s not a coincidence that Ghana’s making steady progress toward achieving the Millennium Development Goals. Right now it’s one of the few African nations that has a shot at getting there by 2015.

No one’s leaked me a copy of the president’s speech in Ghana, but it’s pretty clear he’s going to focus not on the problems that afflict the continent but on the opportunities of an Africa on the rise. If that’s what he does, the biggest cheers will come from members of the growing African middle class, who are fed up with being patronized and hearing the song of their majestic continent in a minor key.

I’ve played that tune. I’ve talked of tragedy, of emergency. And it is an emergency when almost 2,000 children in Africa a day die of a mosquito bite; this kind of hemorrhaging of human capital is not something we can accept as normal.

But as the example of Ghana makes clear, that’s only one chord. Amid poverty and disease are opportunities for investment and growth — investment and growth that won’t eliminate overnight the need for assistance, much as we and Africans yearn for it to end, but that in time can build roads, schools and power grids and propel commerce to the point where aid is replaced by trade pacts, business deals and home-grown income.

President Obama can hasten that day. He knows change won’t come easily. Corruption stalks Africa’s reformers. “If you fight corruption, it fights you back,” a former Nigerian anti-corruption official has said.

From his bully pulpit, the president can take aim at the bullies. Without accountability — no opportunity. If that’s not a maxim, it ought to be. It’s a truism, anyway. The work of the American government’s Millennium Challenge Corporation is founded on that principle, even if it doesn’t put it that bluntly. United States aid dollars increasingly go to countries that use them and don’t blow them. Ghana is one. There’s a growing number of others.

That’s thanks to Africans like John Githongo, the former anticorruption chief of Kenya — a hero of mine who is pioneering a new brand of bottom-up accountability. Efforts like his, which are taking place across the continent, deserve more support. The presidential kind. Then there’s Nigeria’s moral and financial fist — Ngozi Okonjo-Iweala, a managing director of the World Bank and the country’s former finance minister — who is on a quest to help African countries recover stolen assets looted by corrupt officials. And the Extractive Industries Transparency Initiative, which is helping countries like Ghana clean up the oil, gas and mining business, to make sure that profits don’t wind up in the hands of kleptocrats.

Presidential attention would be a shot in the arm for these efforts — an infusion of moral and political amino acids that, by the way, will make aid dollars go further. That should be welcome news to the Group of 8 leaders gathered in Italy to whom Mr. Obama bids a Hawaii-via-Chicago-inflected “arrivederci,” as he leaves for Africa.

This week’s summit meeting looks as if it will yield some welcome new G-8 promises on agriculture. (So far, new money: America. Old money: everyone else.) This is the good news that President Obama will bring from Europe to Ghana.

The not-so-good news — that countries like Italy and France are not meeting their Africa commitments — makes the president’s visit all the more essential. The United States is one of the countries on track to keep its promises, and Mr. Obama has already said he’ll more than build on the impressive Bush legacy.

President Obama plans to return to Africa for the World Cup in 2010. Between now and then he’s got the chance to lead others in building — from the bottom up — on the successes of recent efforts within Africa and to learn from the failures. There’s been plenty of both. We’ve witnessed the good, the bad and the ugly in our fraught relationship with this dynamic continent.

The president can facilitate the new, the fresh and the different. Many existing promises are expiring in 2010, some of old age and others of chronic neglect. New promises from usual and unusual partners, from the G-8 to the G-20, need to be made — and this time kept. If more African nations (not just Ghana) are going to meet the millennium goals, they are going to need smart partners in business and development. That’s Smart as in sustainable, measurable, accountable, responsive and transparent.

Africa is not just Barack Obama’s homeland. It’s ours, too. The birthplace of humanity. Wherever our journeys have taken us, they all began there. The word Desmond Tutu uses is “ubuntu”: I am because we are. As he says, until we accept and appreciate this we cannot be fully whole.

Could it be that all Americans are, in that sense, African-Americans?

Bono, the lead singer of the band U2 and a co-founder of the advocacy group ONE and (Product)RED, is a contributing columnist for The Times.

It’s 2009. Do You Know Where Your Soul Is?

By BONO

So much of the discussion today is about value, not values. Aid well spent can be an example of both, values and value for money.

Notes From the Chairman

By BONO

What Frank Sinatra taught me about art, innocence and experience.

New Evidence on the Foreclosure Crisis

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006 -- during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault -- such as "liar loans," where lenders never attempted to validate a borrower's income or assets.

This common narrative also appears to be wrong, a conclusion that is based on my analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc. It is the largest loan-level data source available, covering more than 30 million mortgages.

The McDash data allowed me to construct a housing price index at the zip code level and then calculate the current equity position of each homeowner. I was thus able to compare the importance of negative equity to other variables related to foreclosures.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home. The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

Further, because it is difficult to account for second mortgages in this data, my measurement of negative equity and its impact on foreclosures is probably too low, making my estimates conservative.

What about upward resets in mortgage interest rates? I found that interest rate resets did not measurably increase foreclosures until the reset was greater than four percentage points. Only 8% of foreclosures had an interest rate increase of that much. Thus the overall impact of upward interest rate resets is much smaller than the impact from equity.

To be sure, many other variables -- such as FICO scores (a measure of creditworthiness), income levels, unemployment rates and whether the house was purchased for speculation -- are related to foreclosures. But liar loans and loans with initial teaser rates had virtually no impact on foreclosures, in spite of the dubious nature of these financial instruments.

Instead, the important factor is whether or not the homeowner currently has or ever had an important financial stake in the house. Yet merely because an individual has a home with negative equity does not imply that he or she cannot make mortgage payments so much as it implies that the borrower is more willing to walk away from the loan.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising (see chart nearby).

Although the government is throwing money -- almost $2 trillion and counting -- at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted. While Federal Reserve actions have succeeded in reducing mortgage interest rates, low interest rates induce refinancings more than they do home purchases.

To be sure, refinancings may put money in peoples' pockets, but it is home purchases that directly impact house prices. Nevertheless, housing prices are likely to stop falling fairly soon with or without government policies. That's because current prices are approaching their long-term, inflation-adjusted pre-bubble level. These pre-bubble prices appeared to be a long-term equilibrium, meaning that prices would be expected to return to those levels once the government's efforts to artificially increase homeownership receded. Unfortunately, recent attempts by politicians such as Barney Frank (D., Mass.) to again artificially increase homeownership levels might delay this return to sustainable equilibrium prices.

Other government policies are likely to be even less effective in reducing foreclosures. The Obama administration's "Making Homes Affordable" plan focuses on having the government help lower obligation ratios (the share of income devoted to house payments) down to 31% from levels somewhat above 38%. But my analysis finds that mortgages having such obligation ratios at closing did not later experience high foreclosure rates. This suggests that reducing these ratios is not likely to significantly improve the foreclosure problem.

Understanding the causes of the foreclosure explosion is required if we wish to avoid a replay of recent painful events. The suggestions being put forward by the administration and most media outlets -- more stringent regulation of subprime lenders -- would not have prevented the mortgage meltdown regardless of their merit otherwise.

Rather, stronger underwriting standards are needed -- especially a requirement for relatively high down payments. If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell. A further beneficial regulation would be a strengthening, or at least clarifying at a national level, of the recourse that mortgage lenders have if a borrower defaults. Many defaults could be mitigated if homeowners with financial resources know they can't just walk away.

We are at a crossroads where we can undo the damage to the housing market by strengthening underwriting standards in a reasonable way. But to do so political leaders must face up to the actual causes of the mortgage crisis, not fictitious causes that fit political agendas and election strategies.

Mr. Liebowitz is professor of economics and director of the Center for the Analysis of Property Rights and Innovation in the management school at the University of Texas, Dallas.