Special Report

2009 Failed States Index - The Green Zones

The Green Zones

Where failed states work.

In the cool air-conditioning of the Silverbird Galleria mall in Lagos, Nigeria, it is hard to remember that you are in the 15th-most failed state in the world. The chic coffee shops and designer clothes oddly befit Africa's newest financial hub, where business suits and talk of the latest market returns are ubiquitous. This elegant enclave on Lagos's Victoria Island—less than an hour's plane ride from the rebel-infested creeks of the oil-producing region—is no anomaly, either for Nigeria or for many failed states. Many such countries have shining capital cities or thriving commercial centers, while festering pockets of instability lurk elsewhere. Ethnic separatists might set rural areas ablaze while coastal elites build office parks. Even the worst failed states have enclaves that thrive.

The northern enclave of Somaliland has little to recommend it. Poverty is endemic; unemployment is on the rise; and six refugee camps are strewn across the regional capital of Hargeisa. Then again, says Human Rights Watch's Christopher Albin-Lackey, "Compare it to Somalia, and Somaliland is paradise." Since declaring autonomy in 1991, Somaliland has held elections, created a functioning government, and carved out a semblance of peace in a country where anarchy reigns. Geography and history have something to do with it. Somaliland, which forms the upper arc of Somalia's boomerang shape on the Horn of Africa, was ruled by the British until 1960, while the rest of the country fell into Italian hands. But perhaps a more important factor is what Lackey calls "a real obsession with maintaining peace for the sake of peace" in a country that has known little of it. The suicide attacks in October on foreign and U.N. missions in Hargeisa make clear that one shouldn't be too optimistic. As Somaliland approaches its elections in 2009, however, it has a far less grim outlook than neighboring areas to the south. Unlike the national capital of Mogadishu, at least Hargeisa has foreign missions.

For the last half decade, the Sudanese capital Khartoum has been a boomtown. In 2008, oil revenues were projected to reach an annual $7 billion, bankrolling roads, large-scale agriculture and dam projects, a revamped rail network, and even a new international airport that, at $1.3 billion, would be one of Africa's largest. The country entered last year expecting to construct 11,000 luxury apartments and villas before 2013 for the growing ranks of the wealthy. Even now, investors from China, India, Malaysia, and the United Arab Emirates are interested. This growth has been focused in the north, long the locus of power in Sudan. "It is common to compare the riverine areas [in the north] to a middle-income country," says François Grignon, Africa program director at the International Crisis Group. It's everywhere else, where government and foreign investment are rare, that makes Sudan one of the world's most failed states. In fact, the wealth in and around Khartoum helped prime the grievances that provoked conflicts in the south and west, analysts say. While all the fancy building was going on in the capital, the basics needed for survival—water, electricity, and security—were missing elsewhere.

Towering over the rest of the North-West Frontier Province, Chitral stands out for more than just its 3,700 feet of elevation. The scenic mountain district of 220,000 is a relative bastion of calm surrounded by Afghanistan's most troubled regions on one side and Pakistan's on the other. So safe is Chitral that when the snow thaws each July, the town's polo courts (the world's highest in altitude) host a renowned three-day tournament. "If Swat Valley used to be the Switzerland of Pakistan," says the New America Foundation's Parag Khanna, "Chitral really still is." How did Chitral stay serene as Swat fell to the Taliban? Governance has little to do with Chitral's success, Khanna says. It's geography: Far from the agricultural heartland and natural resources, the district serves as a gateway into nearby Afghanistan and China. Due to snowpack, the area is isolated from Pakistan for much of the year, with just one road linking it to the rest of the increasingly chaotic country. The town's people are equally distinct. Most are of Kho ethnicity and hence remain aloof from the province's ethnic tensions. With any luck, remote Chitral will avoid the Talibanization afflicting the rest of Pakistan.


Special Report

2009 Failed States Index - Trouble in Tehran

Trouble in Tehran

Iran jumped 11 ranks in the Failed States Index this year. What went wrong?


When the U.N. Security Council slapped a third round of sanctions on Iran for its nuclear program in March 2008, the country's economy, bolstered by record crude prices, still looked set to roar. Oil revenues had helped Iran grow at a healthy 6.9 percent clip during the previous year. Even poverty levels were down, according to the World Bank. So how could the country jump 11 ranks in the Failed States Index this year?

The index correctly penalizes Iran for macroeconomic mismanagement. Inflation doubled in annual terms from 15 to 30 percent in 2008 after President Mahmoud Ahmadinejad boosted social spending to "bring the oil money to people's dinner tables." As demand expanded, prices for nontraded goods such as housing rose sharply, squeezing the poor and the middle class. A flood of cheap imports kept inflation from going even higher, but jobs were lost as imports undercut local industries. The central bank restricted credit sharply to reduce inflation, hurting businesses further and putting more people out of work. Inflation did come down to below 20 percent by December, but unemployment probably increased. Iran's jobless rate hovers around 12 percent, with three out of four unemployed Iranians under age 30.

Festering discontent about inequality helped inspire Ahmadinejad's drive to redistribute the oil cash. But on this score, the results were also disappointing. Between 2005 and 2007, the income of the top 20 percent rose more than four times as fast as that of the bottom quintile. The influx of oil revenues, which trickle down Iran's unequal structure of access to power and position, always seems to worsen the distribution of income.

But Iran's economic weakness should not be exaggerated. The Failed States Index, for instance, too harshly critiques Iran for deficit spending and price controls. The government's 2008 budget was tied to a predicted oil price of $39.70 a barrel, far lower than the actual price for much of the year—meaning that "deficit spending" was probably well paid for. And though Iran began to limit purchases of subsidized gasoline, plenty of fuel was available at a higher—but still well below market—price. Finally, any rise in poverty will be cushioned by Iran's free education system, universal basic health insurance, and income assistance.

What the index claims happened in 2008, however, may already be occurring in 2009. Much lower oil prices will cause a massive deficit. If the government tries to keep up its expenditures, inflation will return with near certainty. If the government gives in to the temptation to control key prices, the exchange rate, or interest rates, it would hurt exports. Unless a new administration reverses some of the worst policies of recent years, it is unlikely that the private sector will revive in time to help the economy this year.

Djavad Salehi-Isfahani is professor of economics at Virginia Tech.

Photo: BEHROUZ MEHRI/AFP/Getty Images