macroafricaintel | [#StopTheKillings] Is Africa prepared for the next global financial crisis?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Volatility is back in global financial markets. In early February, Denver-based American hedge fund, Ibex Investors, with just $350 million assets under management, made US$17.5 million on a US$200 thousand VIX wager, an 8,600% return. How come? It bought insurance to protect it when markets go haywire; a farfetched scenario at the time. But they eventually did; on 5 February. More than expected wage growth data in early February raised expectations that the American Federal Reserve would hike interest rates at a faster pace than earlier thought. Bond yields shot up consequently. Expectedly, equity markets took a hit; as the cheap debt hitherto fueling their rally was about to start getting dear. Higher inflation expectations were confirmed almost two weeks afterwards, when American inflation data for January came out at 2.1 percent, 20 basis points above the consensus estimate of 1.9 percent. A week later, hawkish Fed minutes confirmed the fears of market participants. Prior to the release of the minutes, the Fed led markets to believe there would probably be about three rate hikes in 2018. Afterwards, some economists began to suggest there could even be as much as five rate hikes. This is probably extreme. But such varying views, fears and sharp market reactions are evidence of what has been missing from the markets since global central banks starting flooding them with easy money in the aftermath of the 2007-08 global financial crisis: volatility.

In tandem with the Fed, the Bank of England is similarly on a tightening cycle. And the European Central Bank has already signalled monetary contraction could come as early as 2019, even as it has already started paring down its quantitative easing (QE) programme. The Bank of Japan has also started to reduce its asset purchases. Does that mean the end of easy money, though? Not really. At 1.5 percent, American money is still relatively cheap. And even in England, where consumer inflation (3 percent in January) is already above the much sought after 2 percent target of other global central banks, the BOE rate is just 0.5 percent. Emerging markets (EMs), which have been huge beneficiaries of QE, need to start preparing for a post-QE world, however. This is because as interest rates start to rise in advanced economies, as they already have, there is going to be an increasing opportunity cost to allocating capital to EMs. Even so, still attractive EM yields would continue to make the carry-trade too tempting to ignore. But the party will not last forever, surely. At some point, there would be a sharp market correction, as yields rise in response to tighter global monetary policy. When that time comes, emerging and frontier markets, particularly African ones, not already prepared might suffer damaging shocks.

Andrew Alli, president & chief executive of Lagos-based Africa Finance Corporation (AFC) highlights why African markets might be at risk: “Many African countries have run down their reserves and/or borrowed significantly since the financial crisis and, as such, don’t have as much “fiscal space” as they did prior to the last financial crisis. Also their macro positions – deficits/inflation etc – have worsened.” Wale Okunrinboye, fixed income and currency specialist at Ecobank, the pan-African bank, corroborates his view: “Reserve levels across most countries have declined markedly across board as fiscal and current account pressures increased reserve drawdowns across most oil exporters whose economies went into recession….[so] SSA economies at the present appear lightly equipped to deal with [another] global financial crisis.” This was not always the case. In the run-up to the [2008-9] global financial crisis, helped by [the] commodity price rally, [ample] FX reserve levels…alongside relatively low debt levels and high economic growth rates, helped [African] countries deploy countercyclical measures to temper spillover shocks, Ecobank’s Okunrinboye adds. Some African countries have been taking precautions, though. For instance, Kenya sought and secured a 2-year US$1.5 billion standby credit facility from the International Monetary Fund (IMF) in March 2016. It has not had cause to use it; that is, even as the prolonged presidential elections last year could have triggered a need to do so. For such arrangements to achieve their confidence-boosting utility, however, the respective authorities would have to be very transparent: there were revelations in February that the buffer had actually not been available to Kenyan authorities since June 2017. The IMF provided clarification to news agency Reuters in February on why it stopped the authorities’ access for that long: “the programme has not been discontinued but access was lost in mid-June because a review had not been completed”, said Jan Mikkelsen, the IMF representative for Kenya. Still, market participants might not consider such arrangements to be entirely iron-clad in the future.

Still limited exposure
As commodity prices have been rising, could squandered foreign exchange reserves accrete in time before any potential crisis? Mr Okunrinboye gives a comprehensive explanation: “Though [commodity] prices have rebounded, they remain at discounts to levels seen during the commodity super-cycle”. So, wide current account deficits still persist. “Furthermore, capital pressures lurk on the horizon, as a search for yield [which] drove heightened portfolio inflows to SSA capital markets, [caused] significant asset price inflation.” Thus, hurried hot money exits in the event of another global financial crisis are likely to fuel exchange rate pressures. “[And] following an expansion in debt levels [by African economies due to QE], fiscal leg-room appears narrow relative to the last GFC; even as elevated inflation has forced many of these economies into hawkish positions with little choice but to tighten [even more in the event of sudden] currency pressures.” [So, even as] a host of SSA economies are now entering into structural reform programs with the IMF, the overall sense is that they seem lightly prepared for another event of a similar scale.” Even so, it is not entirely improbable that they could come out again largely unscathed. According to AFC’s Alli, “Africa’s general lack of exposure to global trade flows (<3%)” is one reason why.

(An edited version was published by African Business magazine in March 2018)

macroafricaintel | Reporter’s Notebook: At the Afreximbank annual meetings (#AfreximAM18)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In the week past, I was in Abuja for the annual meetings of the Cairo-based African Export-Import Bank (11-14 July.) Afreximbank was also celebrating its silver jubilee; it was established in 1993. It was a hectic four days. Even so, I still managed to do a few things outside of the meetings. To do so, I had to forego what turned out to be some good speeches or panel discussions, however. Otherwise, one would never get the time or the opportunity to do so; especially as with almost all events, the schedule is dynamic – as the presence of invited special guests are confirmed or not, for instance. Thankfully, there were more than a tad eminent personalities that graced the occasion. I wish Rwanda’s Paul Kagame and Ghana’s Nana Akufo-Addo were able to attend, though. But as the South African president, Cyril Ramaphosa, opened the meetings, it was just as well I guess.

Tweets matter
I was a little surprised by how relatively few participants live-tweeted the meetings. Monitoring the news and markets from my workstation in Lagos most of the time, I have found such generous tweets to be most helpful for following key international events; the IMF/World Bank meetings, for instance. Thus, I make it a point to do likewise whenever I attend one. And I did; to the extent I could. Since not everyone can attend these often exclusive events, tweets from participants tend to be much followed by those either not attending or cannot attend. I do not know if it is a deliberate refrain by Nigerian media practitioners, but there is a lot that is missed even for participants otherwise. For even if the entire event were to be filmed the entire time – as indeed this one was – and the videos readily available, it is doubtful anyone other than the video editors would have enough time to watch them all.

Ironically, people from these parts often bandy about aphorisms like “no man is an island” and so on; often to serve a selfish purpose. But the egalitarianism that is supposed to be the consequence of such a lesson is rarely put to action by most. The key question is what is the best way in media to be of service to as many people as possible in the most efficient way. Before the internet and social media, there were not that many options. Privileged journalists, analysts and the like, who hitherto were amongst the very few that could “let other people in” into these exclusive events wielded their power often to their benefit. With social media, that privilege is now available to anyone who wishes it.

Even so, I have observed a certain level of conservatism amongst some journalists from these parts. Not all of them. On the final day (14 July) of #AfreximAM18, as I sought a good position to get a good picture snap of the Nigerian president, Muhammadu Buhari, as he exited after his speech, it was the not so conservative few in the room that enabled me get a sense of what was happening inside the hall before. Why was I outside? I arrived late; deliberately. The only key event of interest to me that final day was the president’s speech. However, I thought, as is often the case in these parts, the VIP would arrive late. Mr Buhari was prompt. And in line with protocol, the doors were shut once he got inside. It was a pleasant surprise. “Nigerian time”, the deliberate tardiness of Nigerian VIPs has become such an institution that it is taken for granted. How did that come about? During the military era, and even now, secret service agents (or other security or private agents of VIPs) would survey a venue ahead of the arrival of their principals. This was done (and still is) for security reasons and social ones as well; if the event is not well-attended, the VIP might choose not to attend, for instance.

Threads for those interested
If you are interested in getting a good feel of the 4-day meetings, you could go to my Twitter handle (@DrRafiqRaji) or search these two hashtags together (“#RR #AfreximAM18”). In the thread, you will find slides from some very excellent presentations. You would certainly find the one on “Nigeria’s Trade & Investment Prospects” quite useful. Another, on the “Investment Prospects for ECOWAS under the AfCFTA”, is also quite rich. You might also want to check my live-tweets (#RR #AdebayoAdedeji”) of the memorial symposium held in Lagos on 7 July 2018 by the United Nations’ Economic Commission for Africa (UNECA) in honour of their former executive secretary, Prof. Adebayo Adedeji, who died recently. If God wills, I should do a reporter’s notebook on it in due course. But now, I have articles to write. Till next time.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays)

macroafricaintel | Regulating social media: Necessity or mischief?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Without the tweets, I wouldn’t be here”, American president Donald Trump told the Financial Times in early April. That the most powerful man in the world sees his Twitter account as his most powerful communication tool speaks to how much the world has changed. Media, news, and communications will never be the same again. Ordinarily a conservative bunch, African heads of state are moving with the times on this one. It is now normal for the continent’s big men to make policy pronouncements via social media. So yes, African leaders appreciate the power the platform wields. And the threat it poses to their often less than democratic rule. Incidentally, even the established democracies on the continent, South Africa, say, are becoming increasingly irritated by how real and imaginary opponents have been able to effectively make them more accountable through social media. Naturally, more than a few African governments want more control over it. But information technology is evolving so fast, and so easily within reach of the average individual, that having been so empowered, the average African cannot now be so easily fed with government propaganda like in the past. Access to alternative narratives is so pervasive that most African governments feel somewhat enervated. Knowledge and skills required to master internet tools are also within reach of most Africans. That is why programmers trained in Lagos could easily get hired by American software firms and those else where without even the slightest doubt about their competence.

Unsurprisingly, African authorities’ attempts at regulating social media and the wider internet have been met with quite innovative responses. Sooner than authorities block one means, numerous other means emerge. When Egyptian authorities shut down the internet in 2011 to restore order as nationwide protests (“January 25 Revolution”) halted almost all economic activities, the citizens found ways to circumvent them. They used proxy servers in place of domain name servers (DNS) blocked by the government. Since local internet service providers (ISPs) were bound to obey the government’s shutdown order, those who could make long-distance phone calls dialled up ISPs in other countries – the government could not possibly shut down all landline phone access without putting its own national security at risk surely. And in a show of solidarity, some foreign ISPs offered their services for free. Even so, some African governments remain undeterred.

Determined folks
In early March, South African state security minister David Mahlobo revealed the authorities were considering the regulation of social media. “There is a lot of peddling that is going on”, he asserted then about the medium. He was referring to increasing incidents of so-called “fake news” and other unseemly reputation-damaging activities of some social media influencers. But how is that to be curbed before the act with stymieing free speech? Besides, are current laws not encompassing enough to prosecute infractions by social media users and influencers? In a clear change of tact, Mr Mahlobo told the South African parliament later that month that his emphasis is on cybercrimes or crimes that the internet is used to facilitate like human trafficking, defamation, child pornography and so on. Put that way, the proposed Cyber Crime and Cyber Security Bill should pass easily. The potential downside is that the powers that the law would vest in the authorities could easily be used by them for less than noble means. At least, there would be a debate on the issue before the bill is passed. In some African countries, that would not be an option.

Authoritarian African regimes in Ethiopia, Cameroon, Gabon, Chad, Egypt, Zimbabwe, and elsewhere simply shut down the internet at will, especially ahead of elections or when anti-government protests are about. More recently, authorities in Cameroon shut down the internet in the English-speaking Southwest and Northwest provinces (residents of which have been engaged in protests against the government over what they consider official bias against them by a deliberately francophone system) of the country in March 2017, crippling activities in the technology start-ups hub city of Buea. These regimes might actually be a little bemused by all the fuss around the formal enactment of laws targeted at social media in more tolerant African countries. When Ethiopian authorities arrested the award-winning blogging group, “Zone 9 bloggers” – who were increasingly becoming effective critics of the government – in April 2014, they simply charged the six members they arrested with terrorism-related offences. The authorities’ heavyhandedness was widely condemned: In July 2015 and just three weeks ahead of then American president Barack Obama’s visit to Ethiopia, the bloggers were released and acquitted of all charges.

Much ado about nothing
Existing libel laws and regulations governing mainstream media could easily be applied to erring social media practitioners and users. Little wonder it is suspected that the real object of African authorities is to stifle free speech and dissent. This reasoning is not farfetched. Current administrations in Nigeria and Ghana came to power through the usage of social media tools to force transparency on opponents in government and also for their propaganda. Now in government, they realise the same tools could easily be used against them. Being intimately familiar with the power of social media tools, as they are beneficiaries themselves, naturally they seek to control it. But would they succeed? The official position of the Nigerian government is that there are no plans to regulate social media. This much was acknowledged by Nigeria’s information minister Lai Mohammed in November 2015: “We are not about to regulate or stultify the social media”, he said. Mr Mohammed advocates self-regulation instead.

At a gathering of the country’s top social media influencers that he summoned in the same month, Mr Mohammed urged caution on their part, however, saying “We’ll respect freedom of speech, but social media influencers must tread carefully”. And when the legislature proposed a bill to regulate social media in late 2015, the government was quick to resist the move. “The president won’t assent to any legislation that may be inconsistent with the constitution of Nigeria”, presidential spokesman Garba Shehu said in statement released to the press. Had it passed, the Frivolous Petitions Prohibition Bill proposed by Bala Ibn Na’allah, the deputy majority leader of the Nigerian Senate, would have been an unprecedented clampdown on free speech, a basic human right. The part targeted at social media users read as follows: “Where any person through text message, tweets, WhatsApp or through any social media posts any abusive statement knowing same to be false with intent to set the public against any person or group of persons, an institution of government or such other bodies established by law shall be guilty of an offence and upon conviction, shall be liable to an imprisonment for two years or a fine of N2,000,000.00 [US$6,557] or both fine and imprisonment”.

After vociferous protests by all and sundry, the Nigerian Senate eventually bowed to popular will in May 2016 and stopped further consideration of the bill, arguing most of its provisions were already covered by existing laws. And less than a year later, a court sentenced someone to nine months in prison for insulting a Nigerian state governor on social media. While this is proof that existing laws suffice to make social media users accountable, it is also points to potential abuse. Besides, African authorities have also wizened to the wisdom of prevention: it is better to prevent the damage from being done in the first place. So in addition to shutting down the internet when it suits governing authorities, they also employ their own armies of social media influencers, who not only scan social media for articles of interest, but immediately deploy counter-narratives to neutralise those deemed unfavourable. Perhaps then African governments with social media regulation laws in the works are simply trying not to waste a good opportunity.

(An edited version was published by New African magazine in May 2017)

macroafricaintel | [#StopTheKillings] Why is West Africa less attractive to foreign investors?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

How is it that West Africa only accounts for 5 percent of foreign direct investment (FDI) into the African continent? The World Bank so wondered in an article in July 2017. This is the region that includes the continent’s largest economy, Nigeria, with gross domestic product (GDP) of US$406 billion in 2016, about 29 percent of Sub-Saharan African output of US$1.4 trillion. For comparison, South Africa, the continent’s most advanced economy has a size of US$294 billion. Furthermore, the largest and most dynamic francophone African country, Ivory Coast, with a US$36 billion economy, is also West African. So why the scant foreign investor interest? To buttress the point further, take the following example. Jack Ma, Asia’s richest man, led a cohort of similarly deep pockets from the region to East Africa in July. His first stop was Kenya, an economy barely one-fifth of Nigeria. Mr Ma also visited Rwanda, a tiny landlocked neighbour to Kenya. If perhaps corruption, terrorism and the occasional rebellion in Nigeria and Ivory Coast are disturbing, what about Ghana? With an economy (US$43 billion) almost as large as Kenya, Ghana has a better democratic record and has proved to be one of the most stable African countries. And just as Nigeria struggles to deal with the Boko Haram terrorist group in its northeast, so does Kenya with Al-Shabaab. Additionally, political violence is more of a problem in Kenya than it is in Nigeria.

It begs the question: Why would Mr Ma and his 38 billionaire friends find such relatively smaller African countries more attractive to larger coastal countries with such cosmopolitan cities like Lagos and Abidjan? The reasons are not farfetched. The World Bank asserts cumbersome administrative procedures and corruption at the ports hinder the speedy clearance of goods, for example. These apply to most African countries, though. It attributes access to finance as well. This is probably not as significant, though, because foreign investors are expected to bring their own capital. But if a country’s exchange rate policy is controlled and not transparent, this can be stymied. Incidentally, East African countries have been more reliable in this regard, allowing their currencies to trade without much interference and not hindering the free flow of capital in and out of their jurisdicitions, even during crisis periods. This has not been historically the case in West Africa, especially Nigeria, which until recently not only rationed hard currency but blocked the repatriation of capital, causing great losses to foreign investors. So myriad bottlenecks around doing business in most West African countries are worse than they are in East Africa. Little wonder the World Bank ranks Rwanda and Kenya 56th and 92nd out of 190 countries respectively in its latest Doing Business ranking. Ghana and Nigeria are ranked 108th and 169th respectively. Even though corruption underpines the relatively more difficult business conditions in West African countries, it is not likely why they are less attractive investment destinations, however. Kenya is perceived to be more corrupt than Nigeria, for instance. Infact, Transparency International ranks the largest East African economy 145th out of 176 countries in its 2016 corruption perception index, with Nigeria more favourably ranked at 136th.

That East African countries are more economically integrated may be why though. Because in contrast, West African countries under the aegis of the Economic Community of West African States (ECOWAS) have been more successful at political integration than economic cohesion. A more innovative streak is also a factor, especially in regard of information technology; albeit West African countries like Ghana, Senegal and Nigeria are increasingly demonstrating technological progress as well. Facebook’s chief executive, Mark Zuckerberg, visited Nigeria in August 2016, for instance. East Africa’s strategic location at the horn of Africa is also an attraction. China recently opened it first African military base in Djibouti, joining earlier military complexes of the Americans and others. So what can West African governments do to attract more FDI? They must make doing business easier certainly. The World Bank is helping via a European Union funded 4-year “Improved Business and Investment Climate in West Africa Project”. An ECOWAS Investment Climate Scorecard, it is hoped would engender quicker progress towards integration than the globally oriented Doing Business ranking, say, which though African countries can use to see how they are doing relative to each other, is not as sharp a tracking tool. With patronage-based politics continuing to be tremendously crucial to the stability of most West African countries, however, there is not much political will towards economic integration. Move too quickly and they might have bigger problems than just being difficult to do business in.

An edited version of these thoughts was published in my Forbes Africa magazine column in October 2017. Also published in my BusinessDay Nigeria newspaper column today (Tuesdays).

macroafricaintel | [#StopTheKillings] African state airlines: Necessity or folly?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In May 2017, the Nigerian government announced plans to set up a national airline. Considering the country’s chequered history with such ventures, more than a tad eyebrows were raised. The last time an attempt was made at setting up a national airline, the Nigerian government entered into an arrangement with Virgin Atlantic, a British airline. It did not end well. And if the objective was to restore the national pride that supposedly comes with a national carrier, that too failed. The botched airline, then named “Virgin Nigeria” was more “Virgin” than it was “Nigeria”; in name, that is. The issues that led to the Richard Branson – led Virgin Group to finally leave Nigeria are more complicated. They were literally kicked out. When Nigeria had a proper national airline, it was called “Nigerian Airways” and yes, it was a source of pride; for a while. It is a little disturbing that while African countries like Ethiopia, Kenya and South Africa have since then been able to run airlines that by and large meet the mark internationally, Nigeria has floundered in this regard ever since Nigeria Airways ceased to exist officially in 2003 (It stopped major operations years before). Nigeria’s President Muhammadu Buhari seemed determined to forge ahead regardless; especially now that he seeks re-election, at campaigns of which he would have to account for earlier promises, one of which is to set up a national airline. The original plan was to merge a couple of private airlines, which due to insolvency, had been bailed out by the state’s “bad bank” and thus effectively owned by the goverment. There was a change of plans, it seems. Instead, the Nigerian government appointed international advisers for the setting up of a brand new airline in May 2017; a consortium led by Lufthansa. In early February, it emerged Lufthansa’s terms might have been a little onerous for the governmment. The terms, which included a 75 percent upfront payment of costs in Euros to be domiciled in an internatinal bank, suggest Lufthansa took a few lessons from the nation’s not too stellar record. As both parties could not agree, the Nigerian government appointed Airline Management Group in Lufthansa’s stead. With elections due in about a year and the government in full election mode, how much progress would be made thenceforth is doubtful. And should the Buhari administration fail to get re-elected, it is not unlikely that the idea might be jettisoned all together by a new one.

Corruption, cost-cutting, little or no profit
There is a consistency about the causes of the sad narratives of state-owned African airlines: corruption. Whether it is Kenya Airways, South African Airways, Air Zimbabwe, to mention a few, the wreckage they have become can be traced to fraud, patronage and almost maniacal mismanagement. And to repair the damage, the modus operandi is almost always the same: cost-cutting. Just in April, Sudan Airways announced plans to cut 80 percent of its staff. It had little choice; it does not operate any of its planes currently. Sudan Airways’ troubles are unique, though, having been instigated by international sanctions on the Sudanese government. With hopes up that America would eventually delist Sudan from its list of state sponsors of terror, much needed financing might come about in due course to help with a direly needed turnaround. It is a little surprising therefore that African governments remain determined to either continue managing or set up national airlines; even as examples clearly abound about the difficulties of managing one. John Ashbourne, Africa economist at London-based Capital Economics provides some perspective: “For many countries, this is largely a political decision by leaders who see successful flag carriers as a sign of status.” Whether it is Kenya Airways, South African Airways, Air Zimbabwe, or Sudan Airways, the tales of woes are the same. They are not making enough money to cover their costs, some are alltogether insolvent, and others like the South African one have been weighing overly on state treasuries. Kenya Airways, which made a $251 million loss in its most recent 2016/17 financial year and negative equity of 45 billion shillings, had to be rescued by the Kenyan government in November 2017. The resultant restructuring of the airline’s debt upped the equity stake of the government but inevitably diluted the holdings of existing shareholders. It would take at least 10 years for the new management of the airline to clear the airline’s indebtedness; at least that is the period the government’s guarantee covers. Now the priority of Kenya Airways is not so much about making profit as it is about cutting costs to squeeze as much cashflow for servicing its debt.

The story is no different for South African Airways, the continent’s second largest airline. After years of setbacks under the previous Jacob Zuma adminstration, the South Africa’s state airline finally unvieled a turnaround strategy in March 2018. Cost efficiency is the goal as well. Loss-making since 2011, with debt guaranteed by the state to the tune of $1.7 billion, SAA epitomises all that could go wrong when a government manages an airline. Now with new management, there is hope that its fortunes might be turned around; probably by 2023. Why not just sell it, though? There are suggestions flying around in government circles about a potential 49 percent stake sale. But it is believed the government desires that when that happens, if it happens, it should be a better-run and more valuable SAA that it bequeaths to a potential equity partner. An example of the sentimental attachment to the idea of a national airline is the recent purchase of Boeing planes by the cash-strapped Zimbabwean government. Only just emerging from the clutches of longtime ruler Robert Mugabe, and in dire need of foreign exchange to revive an economy long in the doldrums, Zimbabwean authorities bought four Boeing 777 planes for $70 million in April with plans to purchase even more. Although purchased via a special purpose vehicle and not yet transferred to the hugely indebted and floundering state-owned Air Zimbabwe, it is quite astonishing that such a venture would be a priority of a government that most recently ran a budget deficit of $1.8 billion (11.2 percent of 2017 GDP). There are speculations that the new planes would eventually be part of the fleet of new state-owned airline in the place of Air Zimbabwe, which with debt of more than $300 million is expected to be dissolved or privatized.

Bright spot
There is at least one examplar in the African state airline industry. Ethiopian Airlines is virtually a miracle. With revenue of $2.43 billion from carrying 7.6 million passengers in 2015/16, Ethiopian is Africa’s largest airline by revenue. It is also the largest African airline by profit, according to the International Air Transport Association (IATA). And its growth figures have been through the roof. In the year highlighted, its net profit grew by 70 percent. Imagine that? In a continent where its peers are making losses upon losses or are simply insolvent. Unsurprisingly, it is being called upon to help out elsewhere. In January, it signed an agreement with the Zambian government to, like in the Nigerian case, help revive Zambia Airways, a national carrier that was run aground in 1994, more than 20 years ago. This is just a latest addition to a burgeoning portfolio. Ethiopian Airlines already manages ASKY, a West African airline, and Malawi Airlines. Is Ethiopian’s success reason to be hopeful? “Ethiopian’s success does suggest that a few firms will find their niche; but Africa certainly doesn’t need 54 competing national airlines linking their various capitals to London, Paris, and Johannesburg”, says Capital Economics’ Ashbourne. Some African countries, smaller ones, say, would have to give up on their big dreams, however. Mr Ashbourne suggests “[they] should either merge their efforts, or focus on building regional networks. There is a lot of opportunity to improve intra-African links, for example.” 

(An edited version was published by African Business magazine in May 2018)

macroafricaintel | [#StopTheKillings] Can Lake Chad be saved?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Most Africans probably sometimes just wonder what the fuss about climate change is all about. The planet is getting hotter. So what? What difference does it make to their daily lives? It has always been hot here anyway. What difference would a one to two degrees increase in the temperature make to a people mostly preoccupied with getting their daily bread. Mention the Paris Accord, and some sentiments would probably be jealousy towards the African officials who got to participate in the negotiations while relaxing in the fabled city of love, as opposed to delight at the many laudable measures towards saving the planet in the agreement. But if you start the conversation from the increasing examples of the palpable negative effects of climate change like drought, floods, famine, and so on, on the continent, everyone’s antenna would probably suddenly shoot up.

A striking example is the drying up of Lake Chad in West Africa; which has had debilitating effects on the bordering countries: Cameroon, Central African Republic, Chad, Niger, and Nigeria and a few further afield like Libya, Sudan and Algeria. Erstwhile fishermen have had to make do with less or simply change their vocation. Farmers who relied on the lake for natural irrigation of their farms have also suffered ill fortune. Expectedly, as misery tends to beget more misery, criminals and terrorists have stepped in to fill the vacuum. The costs to lives and livelihoods of the more than 90 percent depletion of the Lake Chad over the past five decades is almost unimaginable. But not until the insecurity it engendered began to make life difficult in much distant lands from the banks of the lake did the authorities in the environs begin to take proper notice. Not that action to save the lake was not taken hitherto. After all, the Lake Chad Basin Commission was established in 1964, more than five decades ago. But with myriad killings from terrorist groups in Nigeria, Niger and elsewhere going on unabated, the authorities had little choice, it seems, but to begin to address not just the symptoms of growing insecurity in their domains but the root causes as well.

Most recently, the efforts towards saving Lake Chad is encapsulated in “The Abuja Declaration” adopted at the International Conference on Lake Chad in late February in the Nigerian capital, Abuja. Highlights of The Abuja Declaration revolve around restoration of the lake, resolution of the security issues emanating from its drying up, and funding for the initiatives towards its restoration. The most important and perhaps the most difficult is the “Inter Basin Water Transfer” (IBWT) project for bringing the lake back to its earlier much buoyant levels. Incidentally, the $14.5 billion IBWT project was first mooted in the 1960s. Considering how little progress has been made since then speaks to the difficulty of the endeavour. The plan entails diverting water from the Congo River more than a thousand kilometres away into Chari River, which feeds Lake Chad. Transferring water from the Congo-Oubangui-Sangha Basin to the Lake Chad Basin would also have benefits for the communities in between. The feeder dam to be built in Palambo in the Central African Republic (CAR) is expected to generate at least 700MW of electricity, for instance. The dredging of the Oubangui River in the CAR would also allow ships to transport goods from what is ordinarily a landlocked country. And expectedly, irrigation, drought mitigation and desertification control would be added benefits.

It begs the question then of how the longsuffering project would be able to break the seeming jinx on it this time around. On the face of it, the right measures are being put in place. A $50 billion Lake Chad Fund under the auspices of the African Development Bank is refreshingly assuring, for instance. Still, the participating countries have strained finances. With their authorities barely able to address burgeoning infrastructural deficits inland, the Lake Chad issue may become another African project that is never lacking in passionate backers with shallow pockets. Still, one should be hopeful.

An edited version of these thoughts was published in my Forbes Africa magazine column in June 2018

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

macroafricaintel | Revamped African ports need good roads & railways to boost trade

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

According to PwC, a consultancy, it is more expensive to ship a container to and from Africa than for other continents. Small shipment sizes are one reason why. Dwell times are another. Some of these inefficiences are due to inadequate infrastructural and human capacity; well-run African ports outside of South Africa tend to be those concessioned to foreign operators. Were African ports to be more efficient, the cost of African goods exports and imports could be cut by more than half, research shows. Higher volumes per port could be a solution. Economies of scale via regional hub ports with shipping volumes of more than 2 million twenty-foot equivalent units (TEUs) per annum would reduce transport costs and make African goods more competitive. That is the thinking of PwC, at least, elaborated in a recent report. Shipments to West Africa, say, would go to one hub port, from where smaller ships and/or inland road and rail infrastructure would be used to transfer the containers to neighbouring countries. PwC believes these regional hub container ports are likely to be those in Durban (South Africa), Abidjan (Ivory Coast) and Mombasa (Kenya). Currently, only the Port of Durban, which handles more than 2.5 million TEUs, qualifies as one. There would eventually be other regional hub port contenders, though.

The Chinese factor
There has been increased invesments in African ports lately; about 10 percent of the global total (based on estimates by PwC). Most are to improve existing port facilities in addition to better managing them via concessions. There are also a few planned greenfield investments. Considering the continent’s contribution to global trade growth has been below 1 percent over the past three decades, the increased interest seems a little counterintuitive. But that would hardly change if what are mostly inefficient African ports are not revamped. African governments now see the need, certainly. Not that they did not hitherto. With so many demands on the public purse, supposedly self-funding ports could not have been a priority. So what changed? John Ashbourne, Africa economist at London-based Capital Economics, a consultancy, suggests reasons why: “There are a combination of factors at work; but a key one is the large pool of Chinese capital that is targeting infrastructure programmes abroad. While France remains a dominant player in West Africa, a lot of the big schemes elsewhere (in Kenya, for example) are only possible due to Chinese involvement.” China, which is now the continent’s biggest trading partner, clearly sees how mutually beneficial it would be to help out.

In late March, Nigeria’s vice president Yemi Osinbajo flagged off the construction of the Lekki Deep Sea Port. When completed, it would be able to handle 1.5 million TEUs annually and as much as 4.7 million subsequently; eclipsing the 650,000 TEUs Tincan Island Apapa port with a channel draught of 13.5 metres. With an expected post-dredging draught of 16.5 metres, the Lekki Port’s channel would also be the deepest in the country; and perhaps the West African region. If all goes according to plan, it would rival that at Abidjan eventually; which is already doubling its capacity to 3 million TEUs from about 1.2 million currently. The $962 million worth of upgrades to the Port of Abidjan by a Chinese construction firm, which began in October 2015, includes a second container terminal and a widening of the port’s main channel. And in east Africa, the Dar-es-Salam and Doraleh ports in Tanzania and Djibouti respectively, are already cannibalising the traffic of the Kenyan port in Mombasa, with Ugandan and Rwandan bound goods increasingly transiting via Dar-es-Salam and Ethiopian ones almost exclusively moved via the port at Doraleh. The capacity of the port at Dar-es-Salam is also being doubled and should be able to handle 28 million tonnes of cargo a year by 2020; when new capacity in Abidjan and Lagos are expected to come on stream. The Chinese are also the ones doing the construction. Incidentally, the Chinese are also the ones doing the deepening and expansion of the port at Walvis Bay in Namibia, which President Hage Geingob confirmed in his April state of the nation address, would be completed in 2019. Apart from the Lekki Port, other greenfield projects are being embarked on. In March, Sudan and Qatar agreed a $4 billion concession to develop the Red Sea port of Suakin in Sudan; though this could potentially be at conflict with an earlier deal with Turkey for the same port in addition to building a naval dock. Similarly in March, about a month after losing its Djibouti Doraleh container terminal port concession, DP World, a Dubai-headquartered ports operator, won a 30-year joint venture management and development concession for a new port at Banana creek in the Bas-Congo province of the Democratic Republic of Congo (DRC) that is expected to cost at least $1 billion to construct. The rationale is the same as the Lekki Deep Port. The DRC’s current main port is too shallow to handle bigger vessels. The new investments are providing model African port operators with new opportunities. For example, South Africa’s Transnet aims to operate three berths at the new port being constructed in Lamu, Kenya and is also looking at a deal with ports authorities in Benin Republic in west Africa. At least $2 billion in port investments are also planned in Ivory Coast, Mozambique, and Tanzania; some of which would be accompanied by new railways and roads.

More ports, more trade?
Is there a risk of overcapacity then? After all, some ports are already cannibalising each other’s traffic. It would be short-sighted to think so. According to the IMF in its April World Economic Outlook report, China is expected to grow at about 6 percent over the next half a decade, and thus remain the main driver of global growth; estimated at about 4 percent in the period. In the same vein, Africa’s projected economic growth of about 4 percent over the next five years is expected to remain driven in part by international trade; more of which it now does with China. In its most recent update, the IMF notes a strong recovery in global trade, which grew by an estimated 4.9 percent in 2017. And although a potential trade war between America and China is a cause for concern, and could potentially dampen the resurgent optimism, recent developments like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership by countries that account for 15 percent of global trade and the African Continental Free Trade Area (AfCFTA) agreement, point to likely higher trade growth in the future. So, better-run African ports, with greater capacity, and indeed new ones, would potentially position the continent to be a more active participant in global trade. PwC explains the logic in its report this way: “increased volumes of trade and more productive and attractive ports will accelerate changes in global shipping routes serving Africa…[and] will lead to increased integration with global shipping and trade routes,…reducing transit times and reducing the unit cost of transport to and from the continent”. But is it that simple? Not entirely. Capital Economics’ Ashbourne assesses the matter this way: “Improved infrastructure will help to boost trade [but] the real problem is often “last mile” links. [So] it doesn’t matter if the port functions perfectly if the rural roads that lead to the inland areas don’t work properly.” Infrastructure for trade, whether they are ports, roads or railways, have to be integrated to make a difference.

An edited version of this article was published by African Business magazine in May 2018