macroafricaintel | African politics takes a positive turn

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Not long after the news that the Zimbabwean military had put former president Robert Mugabe under house arrest, Uganda’s longtime leader, Yoweri Museveni, made changes to the leadership of his army. Coincidence? Not really. Even though there are reports of foreign support for the recent military takeover in Zimbabwe, it could not have been carried out without the support of the army chief General Constantino Chiwenga. Probably realising this, Mr Museveni decided he had better put someone “reliable” in the post. He did not stop there. Afterwards, he signalled he would be looking to raise the salaries of “soldiers, public servants, health workers and teachers…”. (See how soldiers come first.) The real question then becomes what the chances are that what happened in Zimbabwe may soon happen in Uganda, Togo, Equatorial Guinea, Angola, or Cameroon; where other longtime leaders and/or their children preside. In Togo, for instance, there are continued protests demanding President Faure Gnassingbe, who succeeded his father, Gnassingbe Eyadema, resign or at least not seek another term when his current third 5-year stint expires. In Cameroon, the only major challenge to Paul Biya’s almost 35-year rule is probably something he would be able to resolve easily: Anglophones want better treatment and representation. So they are not so much challenging him as they are really just seeking a better life. And in Equatorial Guinea, where vice-president Teodoro Nguema Obiang Mangue, the son of President Teodoro Obiang Nguema, another sit-tight leader, only just got prosecuted for corruption in France, there is little or no sign the ruling family would give up the reins of power anytime soon. In fact, in recent legislative and municipal elections, the ruling Democratic Party of Equatorial Guinea (PDGE) won almost 100 percent of the vote. In Angola’s Jose Eduardo dos Santos’ case, however, he had the good sense to quit while he was still ahead. Of course, his successor, Joao Lourenco, has moved swiftly to consolidate power, firing Isabel dos Santos, the former president’s powerful daughter, and replacing the police and intelligence chiefs; all barely two months into his presidency.

Love potion
In determining who might be ousted amongst the remaining longtime rulers on the African continent, it would help to consider what triggered that which happened in Zimbabwe. Firstly, Mr Mugabe decided to put his wife in his place; a woman with no credentials other then she shared a bed with him. In an African context, there could not be a more infuriating development in what is still largely a patriarchal society. Incidentally, just some kilometres away, in neighbouring South Africa, embattled President Jacob Zuma desires that his ex-wife takes his place in the elective conference of the ruling African National Congress (ANC) party in December. In her case, at least, she is well-educated, has apartheid struggle credentials, and has served as minister and most recently as chair of the African Union (AU) commission; to mention a few. But for her surname, being that well-credentialled and experienced makes her fit for the job. And to have kept the name of her ex-husband suggests she is likely still fond of the wily Zulu man. Even so, Mr Zuma could probably still pull it off. But her rival for the top job, deputy president Cyril Ramaphosa, is leading in support at the party branches and would barring an act of God, likely become ANC president come December. Secondly, Mr Mugabe fired his major pillar of support hitherto, former vice-president Emmerson Mnangagwa (who is now set to become president). Thereafter, the powerful clique of army generals, war veterans and grandees in the ruling ZANU-PF party that hitherto enabled him decided they had had enough.

Sun must set
The remaining old men still lording over their people on the continent are not necessarily susceptible to Mr Mugabe’s folly. Mr Museveni perhaps shares his weakness, though. His fondness for his wife, Janet Museveni, who he appointed to the education ministry in June 2016, is well known: when a sharp-tongued female academic disparaged her, he made an example of her. Besides, he has appointed his son, Muhoozi Kainerugaba, whose sharp rise in the military he facilitated, as one of his special advisers. Time will tell. A potentially good thing to come out of the Mugabe debacle, though, is that these longtime and oft-insensitive African rulers might begin to be more empathetic and caring of their country men and women. Not that it would come from the bottom of their hearts. No matter. They will all soon die.

macroafricaintel | Can Africa win Trump over?

By Rafiq Raji, PhD

In mid-May, at the Africa Finance Corporation’s 10th year anniversary infrastructure summit (“AFC Live 2017”) held in Abuja, I asked Jay Ireland, the president and chief executive of GE Africa – the subsidiary of the American industrial giant on the continent – about his thoughts on whether Donald Trump, the American president, would be good or bad for Africa. Specifically, I wanted to know if President Trump would be worth the trouble of winning over. As Mr Trump does not know much about Africa, if the little mention the continent got during his election campaign is anything to go by, engaging with him early on might spring pleasant surprises, some pundits argue. Despite such assurances, I remained a little sceptical. So the opportunity to ask Mr Ireland, who incidentally is also the chair of former President Barack Obama’s Advisory Council on Doing Business in Africa and co-chair of the US Africa Business Centre, which leads the American business community’s engagement activities on the continent, was huge. In a sign of the times and the peculiar style of the current American president, Mr Ireland demurred, humorously wondering if his answer might not become the “subject of a tweet.” More importantly, he said a strong case was being made to the Trump administration to continue ongoing initiatives. I was particulary interested in the “Power Africa” programme initiated during the Obama administration; especially since even during Mr Obama’s tenure, it was floundering, talk less that of Mr Trump. The African Growth and Opportunity Act (AGOA), is not as vulnerable to a Trump rethink, albeit the administration could still exercise certain prerogatives over the choice of beneficiary countries and so on. My interpretation of Mr Ireland’s comments are as follows: Should Africa indeed not be a priority for Mr Trump, ongoing African initiatives may simply continue under the aegis of able and experienced technocrats at the American State department. And in the event Mr Trump suddenly develops a keen interest on African issues, proactive engagement with the administration like his and the business people he represents may be hugely differential. It has also been argued that African heads of state should do likewise.

Focus on first-order issues
In light of the recent exit from the Paris climate accord by Mr Trump, however, some are now beginning to think whether there is a need to even try. I would not be too quick to give up. True, with African countries already beginning to see the negative effects of climate change via droughts and so on, the recent American action is a setback. And of course, African countries initially had their own reservations about the accord. Not a few wondered why they should have to be environment-friendly at the expense of their development; especially as currently developed countries were not similarly cautious. But with research showing a nexus between climate change and increasing incidents of conflict in a number of African countries, there is a growing consensus about the need to be more caring of the Earth we live in. Still, to do this, African countries would require financial and technological support. To this end, the Paris agreement makes substantial provisions. With the American exit, however, also goes its financial commitments. It is also evidence that a Trump presidency would (at least for now) have second-order negative effects for Africa when the issues relate to broader international and multilateral arrangements that Mr Trump is averse to. So it is on the more specific African initiatives that African leaders should hope to influence him on.

Show respect
At the recent G7 summit in Italy, it was all too clear Mr Trump was not enjoying himself. He was particularly irritated by Emmanuel Macron’s (the French president) “macho-diplomacy”: Mr Macron’s overly firm and lingering handshake with Mr Trump at their very first meeting since the former’s inauguration was well-reported. As if determined to rattle the American president or put him to size, Mr Macron also made sure to refer to the incident afterwards as deliberate. That and another, where Mr Macron seem to be moving towards Mr Trump to shake hands, as the G7 leaders and invited guests did their traditional group-walk in front of the press, but at almost the last minute swerved to shake that of Angela Merkel, the German chancellor, must have been a little unnerving for a man known for his fragile ego. Thus, it is very likely that unpleasant experience was at least a secondary motivation for his action on the Paris accord. In his speech announcing the decision, Mr Trump was almost certainly taking aim at Mr Macron when he said: “I was elected to represent the citizens of Pittsburgh, not Paris.” (The Washington Post did a very insightful article on the dynamics leading to Mr Trump’s decision.) At the G7 summit it turns out, one of few instances where Mr Trump seemed to be enjoying himself was when he ran into some of the African delegates: Yemi Osinbajo (Nigeria), Alpha Conde (Guinea), Uhuru Kenyatta (Kenya), Hailemariam Desalegn (Ethiopia) and Akinwumi Adesina (African Development Bank). With deft handling, Mr Trump could become an ally.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/can-africa-win-trump/

macroafricaintel | Africans can judge themselves

By Rafiq Raji, PhD 

Unfair system makes easy prey of Africans
At least three African countries have announced plans to withdraw from the International Criminal Court (ICC). South Africa and Burundi would almost certainly be out by October next year. Many are likely to follow. Their reason? The ICC unfairly targets Africans. Established in 2002 to prosecute genocide, war crimes, and crimes against humanity, the ICC could as well relocate to Africa instead of its current wintry abode in the Netherlands. All but one – relates to allegations of war crimes in the 2008 Georgian armed conflict – of the ten cases currently being investigated by the ICC are related to African states. For a United Nations (UN) body, it is almost ludicrous that two permanent members of the UN Security Council do not subscribe to the court. China never ratified the Rome Statute, the treaty which established the ICC. The United States decided not to ratify the treaty in 2002, after having signed it two years earlier. The case of America, that supposed bastion of democracy and justice, is particularly shameful. Even as it has not subjected itself to the jurisdiction of the court, America, or any of the other three members of the Security Council, can block any case from being referred to the ICC. The United States would almost certainly stop any attempt to prosecute Israeli officials for alleged war crimes in Palestine. And under the current geopolitical order, it is very unlikely that Russia would allow the prosecution of the Syrian Assad regime, under whose watch that country has been virtually decimated. Not that that couldn’t change if the Russian regime suddenly rearranged its priorities, like its ever-scheming leader, Vladimir Putin, is wont to do.

Justice for all
If the ICC is to become legitimate, all members of the UN must be subject to its jurisdiction. Else, no African country has any business being a party to it. The ICC’s African tilt thus far certainly feeds the derogatory notion that Africans could not be trusted to dispense justice for themselves. Worse still, western exceptionalists are able to point to Africans’ longstanding mistrust of their ‘big men.’ And there might be some merit to that supposition, when you look at how justice is perpetually subverted in a lot of African countries. Ironically, the judiciary is probably the most credible institution left standing in most of them. Relatively, that is. For even as it was well known that judicial officers were similarly engaged in a myriad of corrupt activities, they at least went about their indiscretions with some sense of shame. And most of the corrupt ones tried to avoid ostentation. Not all of them it turns out. Considering how they had been largely left alone, the seeming impunity made some of them careless: Nigerian judges currently have a credibility problem, after raids on the homes of some very senior ones amongst them revealed they may have been living above their means. About a year ago, Ghanaian judges were actually caught on video by an investigative journalist demanding for bribe and sex, leading to the dismissal of at least twenty judges and magistrates. Still, judicial corruption is not peculiar to African countries, albeit it is more rampant. The South African system is probably as robust as it can get though. Regardless, Africans have demonstrated they can rise up to the cause of justice when needed: in May 2016, with support from the African Union, former Chadian dictator, Hissene Habre, was successfully prosecuted in Senegal for crimes ranging from torture to slavery during his almost a decade rule.

Empower the African court
At the core of the flawed state of the ICC is equity and equality. Is it a coincidence that most cases at the ICC are on African countries? Surely it is not the only continent where such atrocities have been committed. I am still personally distraught watching how Kenya’s Uhuru Kenyatta, a sitting African head of state, was made to go through the indignity of a trial on live international television. If that is not reminiscent of colonialism, I don’t know what is. Although the charges against him were eventually dropped, Mr Kenyatta has the unenviable record of being the first head of state to be so tried. I agree that victims of the violence during the elections that heralded his emergence deserve justice. But still, heads of states are treated with respect not because of who they are but because they embody the sovereignty of a people. Yes, most leave much to be desired. Even so, some pretensions matter: everyone deserves a certain level of dignity. I have heard arguments about the motive of the Zuma-led South African government in seeking to exit the ICC at this time. Critics of the South African move have suggested that given the country’s stature, it may have unwittingly provided cover for some not so well-regarded African leaders – ‘elected dictators’ – to now make similar moves. The Gambia proved the point all too quickly, announcing its withdrawal shortly after. No matter. There is an opportunity in the growing anti-ICC sentiment: the mandate of the AU’s African Court of Justice and Human Rights should be expanded.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays); http://www.businessdayonline.com/category/analysis/columnist/rafiq-raji/

Thematic | Is the developmental bias of Sub-Saharan Africa’s SWFs appropriate?

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 05 Jan 2016. See link viz. http://businessdayonline.com/2016/01/is-the-developmental-bias-of-sub-saharan-africas-swfs-appropriate/ 

Sovereign wealth funds (SWFs) are a relatively recent phenomenon in Sub-Saharan Africa (SSA). Only three SSA countries are members of the International Forum of Sovereign Wealth Funds (IFSWF). Although Botswana set up its own much earlier in 1993, the other two – those of Angola and Nigeria – were operational in 2012. Both have investment policy statements (IPS) and asset allocations with a developmental bias. With infrastructure being a dominant asset class in their portfolios, they could rightly be seen as extra-budgetary structures. These two almost certainly mimic development banks. Their social focus comes with risks. In its simplest form, a sovereign wealth fund is akin to a savings account. A country – often a resource-rich one – decides to save some of its revenue for the future. Ideally, SWFs should provide fiscal relief in times of financial strain. Having only been set up recently, the Nigerian and Angolan SWFs have largely not been able to perform their stabilization function as lower crude oil prices currently weigh significantly on the budgets of their respective governments. Their relatively small size and broad investment mandates may also be why.

Botswana’s Pula Fund currently has US$ 7 billion – 46 percent of gross domestic product (GDP) – assets under management (AUM), based on data from a report by the Harvard Kennedy School in April 2015. It invests only in foreign assets. Almost twenty years later, Nigeria set up its own – Nigeria Sovereign Investment Authority (NSIA) – with a modest US$ 1 billion (0.2 percent of GDP). Nigeria discovered crude oil in 1956, more than ten years before the huge Orapa diamond mine discovery in Botswana. Although Angola’s SWF – Fundo Soberano de Angola (FSDEA) – initially set up with US$ 5 billion (4 percent of GDP) was also established in 2012, a long running civil war made it hitherto difficult for any meaningful development planning. To avoid the mistakes made by Angola and Nigeria, Ghana set up a two-part petroleum fund in 2011 just as it started earning crude oil revenues. The Ghana Stabilization Fund (GSF) and Ghana Heritage Fund (GHF) now have assets under management (AUM) bordering on almost US$ 0.5 billion as at the end of June 2015. Ghana also set up an infrastructure fund – Ghana Infrastructure Investment Fund (GIIF) – in 2015 with US$ 250 million from the proceeds of its US$ 1 billion Eurobond issue in 2014. As it would be investing entirely in domestic infrastructure, the GIIF would probably not qualify as an SWF under IFSWF criteria. The NSIA and FSDEA include infrastructure funds that invest predominantly in their domestic markets, however.

Some experts have raised concerns about the risks associated with SWFs investing in their domestic markets. They relate to whether it fits with their primary stabilization and savings purpose. Corruption is also a major concern. Additionally, there are payoff risks associated with investing in local infrastructure. Most SSA public-private partnership (PPP) infrastructure projects suffer tremendous pushback from local populations. Returns are often low and bankable deals are scarce. Probably in realization of these, the FSDEA has a broader Africa-wide infrastructure mandate. In September 2014, one put some of these concerns to Jose Filomeno de Sousa dos Santos, the chairman of FSDEA and Hon. Mona Helen Quartey, Ghana’s deputy finance minister, at the Chatham House African Sovereign Wealth Funds Conference held in London. While highlighting the social imperative of investing in local infrastructure, Mr dos Santos’ answer included a description of how FSDEA plans to ensure these investments pay off. These were along the lines of how a typical infrastructure fund makes returns and included talk of a social return. Hon. Quartey opined that the infrastructure programmes of the Ghanaian funds would not overlap with those already covered by the national budget. At that conference – perhaps the most comprehensive one to date that focused exclusively on African SWFs – Michael Maduell, the President of the Sovereign Wealth Fund Institute (SWFI), a globally recognized authority on SWFs, actually argued in favour of these views, citing how the Kuwait Investment Authority (KIA) helped rebuild its home country’s infrastructure in the aftermath of the Gulf War. The oft-cited Norwegian SWF also invested heavily in its home country’s oil and gas infrastructure in its early days. So, there are valid arguments on both sides.

There is probably a need for the relatively high infrastructure asset allocations of the NSIA (40 percent) and FSDEA (22 percent) to be reviewed downwards. The United Arab Emirates’ (UAE) Abu Dhabi Investment Authority (ADIA) – one of the best managed SWFs in the world with more than US$ 700 billion AUM – has a 1-5 percent asset allocation to infrastructure. Another fund of the UAE – Mubadala Investment Company – invests domestically and globally in industrial and infrastructure assets, however. From a diversification perspective, it is probably unwise for SWFs to invest domestically. In Nigeria and Angola, lower crude oil prices have exposed the concentration risks in doing so. The political risk is probably not worth the trouble either. There is probably going to be a need for the NSIA and FSDEA to revise their investment policy statements in due course. The Botswanan Pula Fund’s exclusive foreign financial assets focus is ideal, albeit it could probably be more transparent. At 0-4 percent of their respective countries’ GDP, the NSIA and FSDEA are too small to perform their stabilization function. The Nigerian and Angolan governments ought to increase their size. In November 2015, Nigerian authorities announced an additional US$ 250 million capital contribution to the NSIA’s funds from liquefied natural gas export proceeds. They should add more. And if crude oil prices do recover, the governing legislations for these bodies should be reviewed to ensure they are able to perform their stabilization and savings functions more effectively in the future.

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#Angola – In reset mode as lower oil revenue stretch government finances

By Weyinmi Omamuli

Forced spending cuts to slow growth to 3.2% in 2015. The country’s fledging non-oil economy (43% of GDP) has registered impressive growth rates in recent years, averaging 8.1% over the last five years. The Agriculture sector – which employs 70% of Angolans – grew by 11.9% in 2014. Still, Angola cultivates just 30% of its available agricultural land. Nascent investment and reforms in the sector should see improvements over the medium term. For instance, a 2005 irrigation project funded with Chinese money in Caxito has recently helped transform the country from a net importer of bananas to a net-exporter. A recently approved 12 billion kwanza credit facility aimed at small-holder farmers should also help boost output. That said, the agriculture sector has actually shrunk by at least 1% since 2009, underscoring the urgency for ramped-up efforts.

WOAngola2
Source: IMF Article IV report (Sep 2014); macroafricaintelligence

Authorities to reset diversification plans with planned infrastructure projects & reforms likely delayed. Recent strides towards economic diversification are still too closely linked to the oil sector. For instance, the significant expansion in construction’s share of GDP to 10.4% in 2013 from 8.2% in 2009, reflects ramped-up government investments in public infrastructure projects, linked to high-oil prices. However, the sector’s capture of economic activity has been far less pronounced than the public sector’s (administration and defence), which expanded to 17.5% from 13.5% between 2009 and 2013, and is the largest single driver of ‘economic diversification’. Now, both sectors are threatened by weaker oil prices, especially the former as planned infrastructure projects are delayed, cancelled or squeezed due to a lack of funding. Although the government has already secured a one billion dollar loan from the AfDB to fund its Power Sector Reform Support Program (PSRSP), it is likely that the planned five billion dollars of investments in the energy sector will be delayed. However, on-going projects such as the 2000MW hydroelectric power project in the Kwanza basin will probably still be implemented. These delays and shortcuts will further add to the government’s poor track record of executing its Public Investment Program and improving the operating environment.

WOAngola1
Source: IMF Article IV report (Sep 2014); macroafricaintelligence

Medium-term prospects for non-government, non-energy sectors of the economy will hinge on the authorities’ ability to generate alternative revenues. To consolidate recent momentum in the non-oil sectors, the authorities are targeting reforms to mobilise non-oil sources of revenue. A $450 million World Bank loan – agreed at the end of June – has been contracted to facilitate this goal. Yet this will be a long-term agenda, given high levels of poverty (and even higher inequality), which limit the domestic tax base. However, on-going projects should support the shorter-term outlook. For instance, circa 3.5 billion US dollars of investments are currently in place to revive manufacturing in the agro-industry and textiles sectors – the latter supported by funding from Japan’s Marubeni Group. However, prospects could be hampered by the disruptions in planned complementary public infrastructure investments — particularly in power generation – which are essential to sustain the sector’s high growth rates which reached 8% in 2014. The services sector (23% of GDP) has struggled to attract significant private sector FDI, however, partly due to Angola’s high operating costs. Still, the information and communication technology (ICT) segment could provide a boost to the sector over the long-term as growth rates averaging 55% per year over the last decade begin to attract foreign investment. Yet projects here are still facing delays such as the launch of the Russian-funded AngoSat-1 – Angola’s first satellite – now expected to launch in 2017 from an initial date in 2015. Low economic returns on public investment also raise doubts about the sustainability of the government’s public sector-led economic diversification model, adding downward pressure on slowing FDI flows. These are set to decline to 12.3 billion dollars this year, from 14.5 billion in 2013 – most of which will go towards pre-salt oil exploration which has the potential to double Angola’s estimated 13 billion barrels (2013) of proven oil reserves. Consequently, the oil sector continues to hold the greatest promise for the country’s long-term economic fortunes with output expected to expand by 2.25% a year over the next five years as production recovers, and new fields (including the first phase of a pre-salt oil field), come on stream in 2017.

(Edited by Rafiq Raji, Ph.D.)