macroafricaintel | Flattered Trump achieves little in Asia

By Rafiq Raji, PhD

Donald Trump, the American president, concludes his 5-country Asian trip in The Philippines today (14 November). Heralding his arrival in Beijing a week earlier – his third stop after earlier ones in Japan and South Korea – was a reminder of China’s trade surplus with America, data for which came out at US$26.6 billion for October; about US$223 billion thus far this year. And if he thought his trip would make China buy at least as much American goods and services as go the other way, he was a tad disappointed. Of course, there was much pomp about the US$253.4 billion in deals signed between the two delegations. But much of these were not substantive. And some were actually just old deals. The extent of the divergence in the views of the Chinese president, Xi Jinping, and President Trump, would become writ large in Da Nang, Vietnam, at the Asia-Pacific Economic Cooperation (APEC) summit, where they both headed afterwards. They provided sharply contrasting visions on trade in their speeches to the gathering of Asian-Pacific leaders. While President Xi espoused multilateralism, openness, and globalisation, Mr Trump was unapologetically insular in his views. Brief incidental interactions with Russian president, Vladimir Putin, at the APEC summit, in place of a much anticipated formal meeting, did not yield much either. Because even though the Kremlin published a joint statement on the crisis in Syria, there was not much there that was new; a missed opportunity. It did not help of course that the controversy over alleged Russian meddling in the 2016 American presidential elections would not just go away; no doubt made worse by Mr Trump’s equivocation on the matter. In fact, what little progress that was made during his time in Asia was actually on matters antithetical to his agenda. A deal was reached by the 11 countries remaining in the Trans-Pacific Partnership (TPP) trade agreement he ditched, for instance; albeit there were a few hiccups here and there before that came about.

Playground rhetoric
Mr Trump came out a little bruised on the North Korean matter as well. After initially striking a somewhat conciliatory tone towards the communist regime, urging it to do a deal over its nuclear weapons programme, he adopted an aggressive posture shortly afterwards in his address to the South Korean legislature; defiantly telling the volatile man up north not to test America’s might. Unsurprisingly, the North Korean regime replied with insults, calling Mr Trump an ‘old lunatic’, ‘warmonger’ and ‘dotard.’ Not one to take such expletives lying down, the American president threw back a few of his own, suggestively referring to Kim Jong-un, the North Korean leader, as ‘short’ and ‘fat’. Even so, if there is a slight chance of some deal with the communist regime, Mr Trump’s unusual style probably makes him best-placed to make it happen. China remains crucial to any potential progress, however. Unfortunately, they did not offer more than they already had on the matter.

Flatter to naught
The Japanese were more gracious at least; they imposed additional unilateral sanctions on North Korea. Not that this could necessarily be attributed to Mr Trump’s powers of persuasion: North Korea fired missiles over Japan in mid-September. And this was despite Mr Trump’s taunts at prime minister Shinzo Abe: He went on unabashedly about how the Japanese were inferior to Americans and wondered aloud why the Japanese did not shoot down the North Korean missile, suggesting how if they had American-made weapons, they would have been able to do so easily. (The Japanese are officially pacifist but have a military for self-defense purposes.) Little wonder then his Japanese trip turned out to be a failure somewhat. He did not get much from them on trade; a major issue for him. (Like China, Japan also maintains trade surpluses with America; albeit at 9 percent of the total American trade deficit, it pales in comparison to China’s 47 percent.) As if to buttress the point, the Japanese ruled out a potential Free Trade agreement (FTA) with the Americans, Mr Trump’s preferred route to dealing with trade imbalances. Instead, Japan led the effort to ensure a deal was reached on the so-called TPP-11. The Asians were all smiles but gave him little.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/flattered-trump-achieves-little-asia/

macroafricaintel | What is the point of Trump’s Asian trip?

By Rafiq Raji, PhD

Donald Trump, the American president, arrived Beijing today (8 Nov), the third stop on his 5-country Asian trip, after earlier stops in Japan and penultimately, South Korea. Heralding his arrival was a reminder about China’s trade surplus with America, which came out at US$26.6 billion for October; making it a total of US$223 billion thus far this year. President Trump would like the reverse to be the case. Unfortunately, it would continue to be a source of frustration for him, and in fact any other American leader who desires that China buy at least as much (if not more) American goods and services as go the other way. Incidentally, China is already making headway in the sophisticated industries that America may have once relied upon to stay ahead; which often are in partnership with American companies in China itself. And even as Mr Trump tries to bring back American companies back home from places like China, with jobs in tandem, the economics still favours them staying abroad; albeit not necessarily in China but in cheaper Southeast Asian countries. Turns out, Mr Trump is scheduled to address the 2017 ASEAN summit on 14 November in The Philippines, where bashful and often uncouth president Rodrigo Duterte may be just the ideal host for his similarly mannered American counterpart. And such is the importance the Americans attach to it that Mr Trump’s itinerary was extended by a day to accommodate the ASEAN speech. He would not be leaving China empty-handed, though. At least US$9 billion in deals are expected to be made between chief executives of American companies on Mr Trump’s entourage and their Chinese counterparts, commerce secretary Wilbur Ross is reported by CNBC to have said. (Another official is reported to put potential deals to be signed at US$250 billion.)*

Rocket man
With a belligerent leadership at the helm and reckoning by the Russians that in two to three years, it could have missiles able to hit America, North Korea remains a thorny issue. On his first day in Seoul (7 November), Mr Trump struck a somewhat calm tone on the great matter; urging the North Korean regime to come to the negotiating table and do a deal. Next day, while addressing the South Korean legislature, it was the reverse; defiantly telling the communist regime up north not to test America’s might. These are all very well; but fact is, Mr Trump achieved nothing there. And the elements came up against him en route to the demilitarized zone between the two Koreas, as his chopper could not risk an unanticipated fog. The Japanese, who he visited (5-7 November) before the Korean leg, tried to be gracious at least; they imposed additional unilateral sanctions on North Korea. Not that this could be attributed to Mr Trump’s persuasive powers: North Korea fired a missile over Japan in a show of strenght recently. Of course, Mr Trump could not stop himself from taunting prime minister Shinzo Abe on why the Japanese did not shoot down the missile. Ever the salesman, he did not forget to make a pitch for how American weapons would be able to easily do just that, though. (The Japanese are officially pacifist but maintain a handful of troops, supposedly for self-defense purposes.)

Emperor’s new clothes
Of course, Mr Trump did not see how ill-fitting it was to boast about American might to the face of Mr Abe; going on unabashedly about how the Japanese were still second fiddle to Americans. Little wonder then his Japanese trip turned out to be a failure somewhat. He did not get much from them on trade; a major issue for him. Like China, Japan also maintains trade surpluses with America; albeit at 9 percent of the total American trade deficit, it pales in comparison to China’s 47 percent. As if to buttress the point, the Japanese ruled out a Free Trade agreement (FTA) with the Americans, Mr Trump’s preferred route to dealing with trade imbalances; as opposed to the now 11-country Trans-Pacific Partnership (TPP) trade agreement that he ditched but which the Japanese are keen on, for instance. An FTA with the Japanese would have been hailed by Mr Trump as a victory. A highly likely meeting with Russian president, Vladimir Putin, on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Vietnam, his next stop from China, would no doubt be overshadowed by ongoing investigations back home into Russian links of Mr Trump’s associates during his presidential campaign. In the meantime, he should enjoy some relief at his current stop: the Chinese reportedly plan to treat him like an emperor. That is not usually a compliment.

*Trump & Xi announced US$253.4B in deals on 9 Nov 2017; albeit a significant portion is not substantive, as they are simply MoUs and so on.

Also published in my Premium Times Nigeria column. See link viz. https://opinion.premiumtimesng.com/2017/11/12/what-is-the-point-of-trumps-asian-trip-by-rafiq-raji/

macroafricaintel | What about the 2017 BRICS summit?

By Rafiq Raji, PhD

The BRICS group of five emerging economies (Brazil, Russia, India, China and South Africa) held its 9th summit in the Chinese city of Xiamen this year (3-5 September). Originally just an idea by former Goldman Sachs (an investment bank) executive Jim O’Neill in a 2001 publication dubbed “Building Better Global Economic BRICs”, BRICS countries today constitute almost a quarter of global output. They have not proved to be as inspiring since those heady days, though. Since its first substantive summit in June 2009, only China (GDP: US$11.2 trillion) and India (GDP: US$2.3 trillion) have proved to be consistent good performers, albeit China has since 2015 adjusted to a new normal of below 7 percent growth. India is forecast by the IMF to continue powering on above 7 percent, though; over the next two years, at least, after a 7.1 percent headline in 2016. But that is where the good story ends. Brazil (GDP: $1.8 trillion) only emerged from a 2-year recession (the longest in its history) in the first quarter of 2017. And South Africa (GDP: $0.3 trillion) exited a relatively short-lived one in the quarter afterwards.

Mostly about China
The 2017 meeting was somewhat overshadowed by coincidental negative global geopolitical happenings; top among them being the firing in late August 2017 of an intercontinental ballistic missile (ICBM) over Japan by the communist North Korean regime of Kim Jong-un. China, which consititutes more than 60 percent of BRICS output, was called on by world powers to reign in the North Korean regime, which depends a great deal on it for sustenance. Naturally, the key headline from the final communique was related to the crisis. In any case, BRICS has become a veritable platform for China to project power and influence, as it seeks to have more say in international affairs. (As the second largest economy in the world, China would like the IMF to be more representative of the new global economic order, for instance.) And judging from the paltry US$80 million funding commitment ($76 million for an economic and technological cooperation plan and $4 million for projects by the group’s development bank) China made at this most recent BRICS summit, the group probably serves no greater purpose than that; especially when you consider its US$124 billion funding commitment in May 2017 to its ambitious Belt and Road initiative or so-called new Silk Road plan. (It did pledge $500 million for a South-South cooperation fund, though.) As a counterweight to recent American insularity, China used the occasion to once again make the case for globalisation and climate change; two major global issues the Americans have been reluctant to show leadership on under its current president, Donald Trump. Specifically, Chinese president Xi Jinping posited the group “should push for an open world economy, promote trade liberalization and facilitation, jointly create a new global value chain, and realize a global economic rebalancing”.

BRICS plus
The 2017 summit had one major distinction though. It was its largest gathering yet, with non-BRICS countries like Guinea, Mexico, Egypt, Thailand, and Tajikistan in attendance as observers. Their presence was informed by a so-called “BRICS-plus” initiative proposed by China, which could see the current 5-member group include more countries, although this was not formalized at the summit. Of course, it is not too difficult to see why Mexico might be interested in more global outreach, as it faces an imminent dissolution of the North American Free Trade Agreement (NAFTA), which if successful would see it lose lucrative market access to America. Considering it is a major campaign promise of President Trump, it is probably only a matter of time before this happens. Mr Trump desires that America get more from NAFTA, which he believes is currently lopsided in favour of neighbours like Mexico. In any case, China indicated it was interested in entering into a free trade agreement with Mexico; in line with a trend where it now increasingly fills the gap left behind by a less-ambitious America. One of the observer African countries, Guinea, got something as well: it secured a US$20 billion loan over about a 20-year period from China in exchange for mining concessions on its bauxite deposits. Structurally, it did not seem like a bad deal, as revenues from projects the loan would fund would be used to service it. They include a planned alumina refinery and two bauxite mine projects. Roads, a power transmission line and a university are other projects earmarked. Still, considering how shrewd the Chinese are, it is not likely the Guineans got the better side of the deal; especially as the Chinese would get to keep any potential gains down the line, often beyond that which could be reasonably valued at the early stages. Like its other international trade and foreign policy initiatives, the ulimate beneficiary of BRICS is China itself.

Also published in my Premium Times Nigeria column. See link viz. http://opinion.premiumtimesng.com/2017/09/08/what-about-the-2017-brics-summit-by-rafiq-raji/

macroafricaintel | Why are most African airlines floundering?

By Rafiq Raji, PhD

The state-owned airline of Africa’s most advanced economy, South African Airways, is about to be bailed out by the state with about US$1 billion. Again. In July, not only did the state provide cash support to the almost bankrupt airline after an international bank insisted that its loan be serviced, it had to provide about 20 billion rand in guarantees. It would probably not be the last time. Even more saddening is the proposal that the pension fund of public workers may be used to pay almost half of the proposed US$1 billion bailout. Almost everytime credit rating agencies issue a review on the sovereign now, the deplorable state of the airline’s finances is mentioned. Only breath of fresh air is perhaps, finally, it has new management that probably knows its onions. Time will tell. Up north to the east, Kenyan Airways, another state-owned airline (partially though, as the Kenyan government only has a 29.8 percent stake), which incidentally has an international airline of repute, Air France KLM, as a shareholder (26.73 percent stake), would restructure its finances imminently, after failing to recover from a souring of the Kenyan tourism sector by terrorist attacks some five years ago. The restructuring plan seeks primarily to convert the debt it owes 11 local banks into equity via a special purpose vehicle, which would make them the largest shareholder afterwards (according to Reuters).

Bright spot
Some African countries have simply given up on the idea of a national airline, after earlier initiatives either went bankrupt or simply collapsed out of sheer incompetence. But there is a bright spot. Ethiopian Airlines made more money (US$273m net profit) than all African airlines combined (US$800m net loss) in 2016; a point happily made by African Business, a prestigious African publication, and BBC, the premier British broadcaster, in recent features. It begs the question, though: what makes it possible for Ethiopian Airlines to do so well at the same time that its supposed contemporaries are floundering? Tewolde Gebremariam, chief executive of the Ethiopian national carrier puts it rather well in a recent BBC interview: lack of government interference, private sector expertise and cost management. They seem simple, not so? Not really. Even when private sector experts are allowed to run a state-owned enterprise, African governments loathe being ignored.

The discipline of the Ethiopian government provides many lessons. It does not fund its airline in anyway. Ethiopian Airlines is completely run from its own finances. It does get support from where it matters though: America. The US Exim Bank guarantees most of its aircraft purchases, Mr Gebremariam tells the BBC. With that kind of backing, top global banks like JP Morgan Chase, Citi, Barclays and HSBC are all too eager to offer it accommodative financing. Today, a lot of Africans increasingly do not mind a stop at Bole International Airport in Addis Ababa en route their final international destinations and indeed on the return journey back home. Mr Gebremariam made sure to point out to the BBC that at least 2,000 Chinese pass through Bole en route various African countries in the morning and vice versa in the evenings, every blessed day. And anyone who has travelled on the airline would attest to their efficiency. The quality is mid-range, though.

Hands off
Amidst the many floundering African airlines, Nigerian authorities desire to establish a national carrier. The motivation is nostalgic, in part. National pride is also a factor. Many agree that unless the motive is profit, it would suffer the unflattering fate of its predecessors. Thankfully, the authorities plan for it to be private-sector driven. The government has also appointed Lufthansa, a highly-regarded German airline, to advise it. But would the authorities be able to hands off like the Ethiopians seem to be able to do rather well? History suggests this is doubtful. It certainly does not help that Nigeria has a bad reputation when it comes to contracts. The experience of Richard Branson’s Virgin Group in the mid- to late-2000s with its Nigerian airline venture, Virgin Nigeria, in which it had a 49 percent stake, is instructive. Mr Branson was left dumbfounded when a new administration began to question the validity of Virgin’s contracts with the preceding one. What was the gripe? The authorities did not think it was appropriate for Virgin Nigeria to operate from the international terminal of the country’s main airport. To Mr Branson’s dismay, “heavies” were sent to “smash up” his airline’s lounge “with sledgehammers” to ensure compliance. The African aviation sector is not for the faint-hearted.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/african-airlines-floundering/

macroafricaintel | What is Japan’s African game?

By Rafiq Raji, PhD

The 6th Tokyo International Conference on African Development Summit (TICADVI), held on 27-28 August in Nairobi, Kenya, has come and gone. But what did it achieve? Some US$30 billion in aid and investments over the next three years were promised, half of what China pledged late last year at its similarly themed get-together, the Forum on China-Africa Cooperation (FOCAC); also its sixth meeting then. Some 73 memoranda of understanding were also signed, a lot of which were related to infrastructure, power generation especially. Others were in the health, education and expectedly, oil and gas sectors. A friend who attended the summit was particularly excited about some of the products on display at the exhibition along the sidelines of the event, like pay-as-you-go solar power, supplements for maize porridge, and so on.

Like China, Japan is involved in quite a few infrastructure projects in various African countries, albeit to a lesser degree. And Japanese companies already do quite a great deal of business in most of these. Chinese companies increasingly so as well. In sum though, China’s engagement with the continent is more intense and widespread. The Japanese make up for this in other ways. Japanese brands evoke feelings of quality, brilliance and efficiency. From electronics to cars, they are quite ubiquitous across the continent. Despite China’s growing closeness, similar sentiments are barely associated with its brands, if at all. Chinese goods are still considered inferior. Surprisingly, their cheapness barely appeals commensurately. Even so, China’s experience and relatively ample resources may be more germane to African needs. No matter. Both are willing. Sand in the wheels? Both are staunch rivals, albeit they feign some level of maturity in front of their African ‘friends’ – an official Chinese delegation attended TICADVI.

They all want the same thing
When there are numerous suitors for a potential bride, it is often ironic that blessings do not always follow. The one being sought after might overestimate her value, dither, or hope for better opportunities that may never come. Africa is one of many frontiers of interest to these world powers. So for Japan and China, longstanding rivals, whose volatile relationship is writ large by a territorial dispute over eight islands in the East China Sea, Africa provides a vast field for them to spar. Even so, they both really want the same thing: influence. Like China, Japan is also interested in the continent’s mineral resources. Resource-poor Japan seeks fuel for its energy needs, as its nuclear-dominated system have been mostly shut down since the 2011 Fukushima mishap. Both are also counting on African countries to pursue varied agendas at the United Nations and other multilateral institutions. Like the Europeans and Americans before them, Japan and China are also building military bases on the continent. Simply put, they are pursuing their own interests. Knowing this could be a blessing for African countries, whose negotiating positions are enhanced as a result. The temptation to pitch one against the other should be resisted, however. Instead, African countries should articulate what their development needs are and then go with the partner that best ensures their fulfilment. Japan is not offering as much money as China is. But it has one advantage over the latter. It is more technologically advanced. Its projects are executed with the highest standards and are delivered on time. And they last. China, on the other hand, knows only too well how steep the road to development can be. It is likely a better teacher on how to traverse that road than Japan could ever be at the moment. There need not be a dilemma in any case. Both can help.

Accept only the help that liberates you
As the Japanese prime minister, Shinzo Abe, was engaged in his charm offensive – the TICAD conference was being held on African soil for the first time – Chinese officials were quick to deride his efforts. It was almost the same way the Americans were all too quick to point out how the Chinese then newfound interest in Africa was going to be similarly or more exploitative. Truth is, these supposed development partners go into these relationships often because they already see more advantages for themselves. Or at least, they see the costs and benefits as evenly balanced – not in the African case: whether the partner is China, Japan, America or Europe, the advantages are tilted towards the other side. And the toast is always the same: we want to help. That is all very well. What African countries need the most, in addition to infrastructure, is technology and skills transfer. In doing this though, the situation can no longer be as it is currently, whereby these so-called partners set up businesses on the continent, bring their own staff, integrate little and barely mask their disdain. The scorecards cannot continue to be about how many billions of dollars our partners’ supposed benevolence allowed for each time. Thankfully, more energy at these summits is now being devoted towards changing this lopsided paradigm.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/en/what-is-japans-african-game/ 

macroafricaintel | Nigeria-China relations may work this time

By Rafiq Raji, PhD

This past week, Nigeria’s president Muhammadu Buhari was in China. He was given full honours by the Chinese government. Nigerian authorities are hailing the trip as a huge success. They point to the more than US$6 billion worth of investments agreed between Nigerian and Chinese businesses – earlier statements credited to Nigeria’s foreign minister, Mr Geoffrey Onyeama, by Reuters suggested a US$6 billion infrastructure loan was agreed, later debunked by President Buhari’s spokesman. In fairness to Mr Onyeama, he did not say a new agreement was signed. Quoting him in the 12 April 2016 Reuters article: “It won’t need an agreement to be signed; it is just to identify the projects and we access it.” With more clarity on what actually took place, it is now known that what President Buhari did was to re-negotiate loans already agreed with the Chinese by previous Nigerian administrations, especially that of President Goodluck Jonathan. Since that is the case, it seems the loans might actually be more than US$6 billion. As I recall in November 2014 amid much fanfare, China Railway Construction Corporation Limited signed a US$12 billion contract for the 1,402-kilometre Lagos-Calabar coastal railway – the line would be a significant boost for the Niger-Delta and Southeastern regions of Nigeria and is currently a source of divisions in the Nigerian legislature: southern lawmakers accuse their northern colleagues of deliberately removing the project from the 2016 budget, putting President Buhari in a bind somewhat as he reportedly threatened to withhold his assent of the budget until the railway project is put back into the bill – China’s largest single overseas contract at the time, probably still is. If you assume the typical 85 percent Chinese funding format for Sino-Nigerian infrastructure projects, we could say the loans President Buhari successfully re-negotiated might actually be at least US$10 billion for the Lagos-Calabar railway modernization project alone. And there are others. There is the US$8.3 billion Lagos-Kano railway modernization project (contract was initially signed in 2006); Chinese funding commitment using the same ratio would be about US$7 billion. Although some of the funding for these projects were provided by the Chinese government to earlier Nigerian administrations – and diverted to other means by Nigerian authorities to the dismay of their Chinese counterparts – there could be about US$13 billion (taking a median figure) in re-negotiated debt obligations for the Nigerian side. It is probably why Nigerian authorities might not want too much focus on the loans because they are likely more than has been reported. While I worry about Nigeria’s rising debt burden, what worries me more is that most of the borrowings usually end up being spent wastefully on recurrent expenditure. Only recently, Nigeria’s top scribe revealed US$3 billion (600 billion naira) is borrowed monthly by the government to pay wages, based on media reports. Still, if indeed the funds – Chinese or otherwise – are actually used for the designated infrastructure projects and are completed, it would not be overly concerning. Although Nigerian authorities have not revealed whether the local content of the infrastructure projects was re-negotiated as well, it is likely Chinese companies would still supply the labour, equipment and materials for them. Notwithstanding, if Nigeria gets the infrastructure in the end, it would be just as well.

A currency swap agreement with the Industrial and Commercial Bank of China (ICBC) – that country’s largest bank – was also signed by Nigeria’s central bank during the trip; and has since been a source of controversy of some sorts. Most initially wondered why the agreement was not with the Chinese central bank, the People’s Bank of China (PBOC). News making the rounds is that both central banks actually agreed in principle on a currency swap – potential size of US$4-5 billion – with modalities still being negotiated. It is being reported in the media that the Central Bank of Nigeria (CBN) actually proposed a US$10 billion currency swap. A demurral by the Chinese is why about half of that is being considered as more likely. Still, it would be a relatively good outcome. As there are potential downsides, its significance should not be exaggerated however. A currency swap is a two-way instrument. Just like Nigerians would be able to buy Chinese goods using the naira – as opposed to first purchasing the US dollar and then converting to Chinese Yuan – the Chinese would also be able to buy Nigerian goods in naira. And what do the Chinese buy from Nigeria? Crude oil mostly. And since the naira is overvalued, Nigeria would lose significant value for that commodity in that case. That is in addition to the valuable US dollars the country would lose if crude oil sales come under the arrangement. Also bear in mind; the Chinese would be in possession of the US dollar equivalent of the Chinese Yuan Nigeria keeps with the PBOC as foreign exchange reserves. There are other concerns. With the swap, Nigeria’s net position would likely more often be negative. How so? China sells at least four times as much goods to Nigeria, mostly manufactures. And if Nigeria is looking to diversify its economy, it is not in its best interest to make it easier to import Chinese goods. Probably to put some modicum of dignity on the fact that Nigeria was actually in China with a begging bowl, the Nigerian president kept harping on the trade imbalance in favour of China – China accounts for more than 80 percent of its total trade with Nigeria. But is that the fault of the Chinese? You correct a trade imbalance by first building your own industries or say only importing as much as you export. Whereas China’s exports to Nigeria are largely manufactures – machinery, equipment, processed goods, etc. – and very diversified, more than 80 percent of China’s imports from Nigeria are crude oil and gas. In 2013 – most recent annual data available from the National Bureau of Statistics of China – China’s exports to Nigeria was US$12 billion (88 percent of total trade) and its imports were US$ 1.6 billion (12 percent of total trade), putting its total trade with Nigeria in that year at US$13.6 billion. Nigerian authorities put total 2015 trade with China at US$14.9 billion. In two columns in February 2016 – “Africa should renegotiate EPAs for manufactures’ trade parity” – I make a case for manufactures’ trade parity as a model for correcting the significant trade imbalances that exists between African countries and their western and eastern trade partners. So is there any advantage to the swap agreement? Oh yes. Nigerian banks are saved some hassle. And Lagos would effectively be the West African hub for Renminbi transactions. But in light of the aforementioned concerns, the CBN has to ensure that Nigerians are protected as it negotiates the terms.

So what does China get in return? China seeks influence primarily. In any case, it is not really giving much away. On 8 April 2016, acting on instructions from Chinese authorities, Kenya forcefully repatriated eight Taiwanese – charged and acquitted by a Kenyan court in a cyber crime case – to China, not Taiwan. It probably had no choice in the matter. Apart from the many Kenyan infrastructure projects being funded by China, Kenya is also currently negotiating a US$600 million Chinese loan. Nonetheless, the relationship with China is an excellent opportunity. China does not see the relationship as competitive. What Nigeria – and indeed Africa at large – could gain from China is what China is giving up. There is an opportunity in labour-intensive manufacturing as China ascends to advanced stuff. Still, power and infrastructure deficits are constraints. Even so, Nigeria could use special economic zones with designated infrastructure assets to get around them. Progress on this front has been slow, however. More importantly, the real potential gain from the China-Nigeria relationship is if it engenders the transfer of skills and technology from China. This is possible. China is helping Ethiopia in diverse ways in this regard – see my column on 22 December 2015: “East African countries seem to have cracked the Chinese code.” This should also be Nigeria’s emphasis. Fundamentally, China would be happy to help if it finds a Nigerian side that espouses some of the values it holds dear. Integrity and honesty are few examples. At this point, it is important to point out that there are aspects of Chinese culture that are not entirely pleasant. Racism is entrenched in Chinese culture and is at the root of its unpleasant labour practices in Nigeria and other African countries. Still, if the Chinese find honest Nigerian partners who fulfill their promises, there is no limit to the potential gains for the Nigerian side. In this Nigerian president at least, they may have found one such partner. That is also the impression one senses from the Chinese side.

Also published in my BusinessDay Nigeria newspaper back-page column. See link viz. http://businessdayonline.com/2016/04/nigeria-china-relations-may-work-this-time/ 

Thematic | Power shortages may yet weigh on African growth in 2016

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 29 Dec 2015. See link viz. http://businessdayonline.com/2015/12/power-shortages-may-yet-weigh-on-african-growth-in-2016/ 

Sub-Saharan Africa (SSA) is expected to grow by 4% in 2016, based on International Monetary Fund (IMF) projections in October 2015. Yet again, the sub-continent would be pulling below its weight. And a downward revision is still likely. A persistent power deficit remains a significant constraint. Some of it is due to poor planning. Inadequate investment – in some cases due to misplaced priorities as opposed to a paucity of funds – is also why. The influence of its development partners who favour supposedly environment-friendly power sources may also be a factor. Some of the incremental power shortages in 2015 were weather-related; with much of the sub-continent’s hydropower generation capacity unraveling in the year. Drought-hit countries in southern Africa – Zambia, Namibia, and Botswana – had to resort to expensive electricity imports to bridge the gap. In South Africa, a belated maintenance programme for its ageing coal-fired power plants forced power rationing (“load-shedding”) that likely cut economic growth by at least 1 percent in 2015. For an economy already beset by persistent labour unrest, high interest rates, weak demand from China – its largest trading partner – and negative political events, it did not need this additional headwind. Similarly, Nigeria – which constitutes one-third of SSA’s Gross Domestic Product (GDP) and is Africa’s largest economy – needs to generate 10-13GW of power by the end of the first half of 2016 to meet current needs and incremental demand from new development initiatives. Even the most optimistic scenarios do not see it having that level of generation capacity by end-2016. It currently has less than 4GW functional power generation capacity. Gas and transmission infrastructure are major constraints.

During the course of 2015, about a quarter of South Africa’s 45GW power generation capacity was offline due to compulsory maintenance and repairs. Almost half of the outages were unplanned, a symptom of its ageing power plants. While the state power utility provider has indicated there would be no power cuts until April 2016, load shedding is expected to continue into the first quarter of 2017. Two new coal-fired power stations are expected to add almost 10GW to the country’s grid by 2018. Long-term plans include a 9.6GW nuclear power plant and at least 20GW to be sourced from renewable sources. The country’s coal-dominated energy mix may remain for another 20 years, however. In the Nigerian case, authorities envisage emergency repairs and construction of identified critical gas infrastructure should enable the addition of 2GW generation capacity by the first quarter of 2017. Still, this would be below what the country needs. Additional capacity is planned. With Nigeria and South Africa accounting for more than half of SSA’s US$ 1.7 trillion economy, at least 0.5 percent would again likely be shaved off growth in 2016 on the back of power shortages alone.

An increasingly dogged market-driven approach by African authorities is good reason to be optimistic. South Africa, Ghana, Zambia, and Nigeria increased electricity tariffs in 2015. Upward revisions of hitherto subsidized tariff regimes have been forced by burgeoning revenue gaps, as commodity prices remain low. In Nigeria, workers’ unions are already resisting the move. With the opportunity costs so high, consumers might actually not mind the higher tariffs if stable and reliable power supply can be guaranteed. The alternative – use of standby generators – is prohibitively expensive and inconvenient. In some African countries, tariff hikes have been due to expensive emergency electricity imports to meet supply shortfalls. For instance, emergency power supply measures are expected to cost Zambian authorities at least US$ 1 billion (4% of GDP) in 2016-17. Low water levels at its Kariba dam – which produces almost half of its 2.3GW generation capacity – fell to 21% of capacity in November 2015. Consequently, its power deficit widened to above 40% as the shortfall increased to 1GW from 700MW previously. Authorities of drought-hit Namibia have also sought short-term solutions, as its 1GW Kudu gas-fired power plant is not expected to come on stream before 2019. In the Ghanaian case, ship-mounted power plants berthed off its shores are expected to bridge a current supply deficit of almost 500MW. An additional 1.25GW capacity is also planned for 2016 by Ghanaian authorities.

As the world becomes more environmentally sensitive, there is pressure on African authorities to focus more on renewable power sources as they seek to close their countries’ power supply gaps. Nuclear power has not enjoyed similar endorsements. Safety concerns and skill gaps are popular arguments, weak in one’s view. China plans to build – or has under construction – more than eighty nuclear power reactors. This would be in addition to about twenty it already has operational. At 75%, France has the highest nuclear power share of total power production in the world. French nuclear power stations source uranium from Niger, a country that imports electricity from neighbouring and underpowered Nigeria. There is a heated debate ongoing in South Africa around a circa 10GW nuclear power plant planned by its authorities. Apart from the potential fiscal consequences if not well and transparently planned, a major part of the debate is safety and environment-related. A curious angle in the debate also revolves around technological know-how. This is needless. South Africa already sources 4% of its power needs from nuclear sources, based on International Energy Agency (IEA) data. In any case, automation has reduced the amount of skilled manpower needed for day-to-day operations of new power plants, regardless of the source. With nuclear power plants now so much safer, an accident would practically require an Act of God. And in that case, no amount of caution would matter. With the costs of a longstanding power deficit already so high, it would be unwise for African authorities not to consider all options.