macroafricaintel | Climate change & conflict in West Africa (4)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Africa is vulnerable to the effects of climate change. Climate change, in association with socio-economic factors, definitely leads to conflict, and considerable evidence points to causal relationships among the effects of climate change and violent conflict. Climate change causes resource scarcity, which spurs competition that ultimately feeds conflict. Studies reveal that the strength of the climate change-conflict links depends on several factors, including social and political contexts.

In the specific case of West Africa, solutions to conflict that focus on long-term issues such as slowing climate change miss the urgent need to manage emerging conflict before it leads to violence. Ideally, states will take action to mitigate the potential conflicts generated by climate change before these conflicts lead to violence. The relevant questions for policymakers are how and where should they intervene to best effect?

Current evidence suggests that global policy initiatives such as the Paris Agreement are unlikely to offset resource scarcity issues in the near term. Even those measures that nations agree to implement will take many years to make a substantial impact on current climatic trends. Also, few African nations currently have the institutional capacity needed to successfully respond to intense resource and political conflict at a national level.

Thus, I propose that African governments focus their efforts to mitigate the impacts of climate change on proactive interventions to minimize the conflicts associated with resource competition. I suggest institutional interventions at the resource scarcity stage. Examples of these interventions range from efficient irrigation, water rationing, pasture management, resource rejuvenation, to public education and institution-building. They are discussed below.

Restore water bodies
Drying river and lake basins may be restorable. If the proposed Lake Chad inter-basin water transfer (IBT) project succeeds, it would help restore livelihoods in the region, which would in turn reduce potential conflict. However, review of other IBT projects suggests the social and environmental costs may be significant. If this is true, the Lake Chad IBT may have long-term and perhaps more serious implications for climate change and conflict.

Plant trees
Planting trees is a simple and cost-effective measure to rebuild capacity for CO2 absorption. According to the recent study by Bastin et al., planting trees on as much as almost a billion hectares of currently suitable land could absorb up to a quarter of carbon currently in the atmosphere. The study recommends a greater sense of urgency in this regard, however. This is because over time there would be less land suitable for afforestation efforts. For instance, the authors estimate about 223 million hectares of land for planting trees could be lost to climate change effects by 2050.

Build irrigation infrastructure for agriculture
African agriculture, which is largely rain-fed, is currently the least productive in the world. Studies estimate that improved irrigation could boost agricultural productivity on the continent by as much as 50%. According to the International Food Policy Research Institute (IFPRI), only 4% of cultivated land in sub-Saharan Africa is irrigated, compared to 37% for Asia. Thus, the livelihoods of most African farmers are subject to the elements. To move forward, African farmers must adopt modern agricultural methods. These would go beyond irrigation to include complementary measures such as cheaper fertilizer, better-yielding seeds, post-harvest storage and processing facilities, improved access to markets, and the training of and support for farmers.

Incentivize ranching and commercial grazing for livestock production
Ranching, a well-established alternative to nomadic pastoralism, is clearly a success in Ghana. It can be incentivized to be attractive to itinerant pastoralists. Grazing bans are ill-advised. We suggest the creation of enabling environments for commercial grazing instead. This would be privately managed pasture that herders can bring their cows to graze for a fee.

Increase use of alternative & renewable energy sources
The International Energy Agency (IEA) estimates renewable energy could constitute almost half of all new power generation capacity in sub-Saharan Africa by 2040. The case for alternative and renewable energy to replace fossil fuels in Africa is robust. Although some worry that commitments to reducing global warming would slow Africa’s economic development, the continent has a unique opportunity to develop sustainably without externalizing its carbon emission costs to the earth’s climate.

Increase climate change awareness
Africa has the opportunity not to join the current culprits in the developed world by emitting GHGs to the atmosphere. This will require increased awareness of climate change and its potential effects on the continent. The United Nations Environment Programme (UNEP) has many resources to aid governments in this regard.

Strengthen state capacity, democracy and good governance
In areas with strong institutional capacity for conflict resolution, disagreements between farmers and herders should be easy to resolve. Few African countries have built such institutions. This weakness, coupled with poor governance and politics riddled with corruption, allows conflicts generated by climate change to escalate into violence, as evidenced by clashes between sedentary farmers and itinerant pastoralists in countries bordering Lake Chad. It would likely take many years for most African countries to build the state capacity needed to manage the tensions triggered by the impacts of climate change. Still, the example of Ghana shows how state authorities were able to position themselves for effective mediation of conflicts between farmers and herders when they arose.

Final thoughts
Initiatives to proactively mitigate conflicts resulting from climate change must be context-flexible, as locational and situational factors determine the specific interventions that stakeholders will accept. In the case of farmer: herder conflict, ranching might be ideal and mutually agreeable in one context, while commercialized grazing might be preferred by the parties in other specific geographic, socioeconomic and political environments. Various near-term initiatives such as ranching may well be accompanied by long-term measures such as land restoration programmes to green increasingly arid grazing lands. Thus, near-term measures should be harmonized with long-term policy action that addresses root causes.

Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. References are in the original article.

macroafricaintel | Climate change & conflict in West Africa (3)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Related conflicts, including criminal violence such as banditry, kidnapping, and political assassinations, are most severe in Nigeria. Pastoralists in Nigeria have invaded farms, colonized villages along their grazing routes and meddled in the local politics of farmer communities with relative impunity. In response, some Nigerian state governments implemented grazing bans. A proposed organized settlement programme by the government for pastoralists in the greener south has been met with political resistance.

Nigerian authorities view the root of the crisis as the shrinking of Lake Chad. Food shortages and violence have already forced at least 2.4 million people to flee the Lake Chad area. In March 2017, the United Nations (UN) Security Council identified climate change (drought, crop failure, etc.) and ecological changes as factors responsible for Lake Chad’s instability. The UN plans to facilitate raising $50 billion to regenerate Lake Chad by transferring water from more abundant Central African lakes. One UN goal is to create more jobs in the area.

Lessons from the Arab Spring
Unprecedented mass protests across the Middle East between 2010 and 2012 dubbed the “Arab Spring” is an outlier. Neither is the case related to local farmer-pastoralist conflict, nor are local climate change effects believed to have been a contributing factor. Instead, drought-induced wheat production shortfalls in China led to a global wheat shortage, driving bread prices up to unbearable levels in Egypt, a major global wheat importer, and elsewhere across the Middle East and North Africa. Still, the authors argue that although global warming may not have directly triggered the Arab Spring, it may have generated conflict that fed its flames.

World wheat prices more than doubled in 2010 due to extreme climatic events in the breadbasket nations of Russia, Ukraine and Canada. Due to their low incomes and reliance on imported wheat, many countries in the North African and Middle Eastern regions fell prey to the resulting price increases. Governments that failed to meet their citizens’ needs for food security appeared less legitimate, leading to protests and ultimately to violence. Thus, institutional weakness (exacerbated by the use of new communication channels) may have enabled the wave of rebellions and revolutions across the region.

Managing farmer-herder conflicts: The case of Ghana
Farmers and nomadic Fulani pastoralists in Ghana clash violently every year; especially during the dry season from December to March. These conflicts have multiple causes, including scarcity of pasture and water resources due to climate change, cattle rustling and weak laws governing ranching. Ethnic differences are an added cultural factor: “farmers construct Fulani identity as non-Ghanaian.” There is a historical basis for this distinction: the Fulani originally migrated to Ghana from Burkina Faso, Niger and Mali early in the 20th century. They did so in search of pasture, water, land and better economic opportunities.

A recent rise in farmer-herder conflicts in Ghana follows increased cow purchases, as a signal of increased wealth from agricultural development. The combination results in less grazing land, yet more cows that need pasture. When we add increased migration of Fulani herders to Ghana from drought-hit Niger, Mali and Burkina Faso, we see the seeds of conflict.

Whether in times of peace or conflict, farmers and herders in Ghana have a history of cooperating with one another as “cultural neighbours”. This pattern of cooperation takes the form of neighbourly interactions, intermarriages, friendships, trade, and resource sharing. However, recent increases in conflict among members of the two groups spurred the Ghanaian government to institute a ranching programme. This intervention led to a reduction in the number of violent conflicts among members of the two groups in the pilot area of the programme. This success suggests such interventions by the state might serve as a template for other West African countries grappling with similar issues.

Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. References are in the original article.

macroafricaintel | Climate change & conflict in West Africa (2)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Africa is most vulnerable to climate change
The future effects of climate change are likely to be extremely severe in Africa. As a largely agrarian economy, based on a diverse landmass with wide climatic variations, and with limited adaptive capacity and political will to manage the consequences of adverse climate change, the continent is inherently vulnerable. Africa’s forests are diminishing: Sub-Saharan Africa’s forest area, as a proportion of total land area, was 27.1% in 2015, down from 30.6% in 1990. Due to logging and farming, only about 10 percent of West Africa’s coastal rainforests remain. The effects of climate change could be quite severe in these parts, because trees mitigate the effects of climate change.

Climate change promises to bring more frequent and intense floods and droughts around the world, with the number of people suffering severe water stress estimated to be as many as 3.2 billion to 5.7 billion by 2050, depending on the season. In Africa, droughts have become increasingly frequent and last longer. The resultant water stress affects agricultural production and threatens the sustainability of farming communities. Studies show there is almost a 100% probability of warmer and more frequent hot days, warmer and fewer cold days and nights on the continent. Agricultural yields are less in warmer environments. There would also be increased insect outbreaks. Wildfires, increased livestock deaths and greater water stress are also some of the expected impacts.

Climate change has already begun to affect food production in Africa and around the world. During the 2017-18 Kenyan drought, semi-nomadic Maasai and Samburu herders reportedly exchanged their daughters for livestock so they could survive. After frequent droughts diminished their livestock, other nomadic Maasai herders in Kenya turned to crop farming to make ends meet.

In West and Central Africa, owing to water shortage, 45% of farmers have experienced an increase in crop failure, 38% have seen a decrease of their farm income, 17% have observed a reduction in the availability of water for irrigation and 13% of families have seen at least one of their relatives forced to migrate. In most African countries, state capacity is weak and agricultural production is largely rain-fed. Thus, although Africa produces the least amount of greenhouse gases per capita, its people are likely to suffer the greatest consequences.

Climate change, conflict & institutional vulnerability in West Africa (1)
As climate change impacts the world’s physical landscape, it alters our geopolitical structure. For example, drought will increase competition for a diminishing amount of fertile land. Rising sea levels inevitably force coastal dwellers to move inland, further adding pressure to what is likely to be increasingly scarce land and water resources, and combined with other market forces, leads to price rises. These forces generate conflict between supply and demand resources, which may lead to political conflict as the population realizes that prices are rising faster than incomes. When social and political institutions are strong, they can address these conflicts through community leaders, ombudsmen, and other dispute resolution mechanisms. When these institutions are weak, their breakdown opens the door to violent conflict.

Few West African countries have built the strong institutions needed to resolve such disputes. The Fragile States Index (FSI) assesses states’ vulnerability to conflict or collapse, ranking all sovereign states with membership in the United Nations. The FSI ranks West African nations Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, the Niger, and Nigeria in the highest risk band for the 178 nations in their report, indicating their current vulnerability to conflict, rather than as a predictor of their collapse. However, as the FSI provides a surrogate measure of institutional weaknesses and the potential for climate change to generate conflict, the assessment that half of West African nations are highly vulnerable to internal conflict is cause for concern.

Tensions between sedentary farmers and itinerant pastoralists are unsurprising, due mainly to inherent conflicts in their use of the land and other scarce natural resources. Such tensions are present on every continent. Until recently, such conflicts were resolved relatively amicably within the communities involved. However, today’s economic, demographic and political situation is increasingly demanding, with lakes drying up, populations on the move, and violent extremist ideologies poisoning the traditionally accommodative politics of a number of West African countries.

Seeking pasture, pastoralists follow the seasons across the region. During the rainy season, many tend to settle in their primary locales in northern semi-arid parts of the Sahel sub-region. When rains are scarce, they move south for pasture and water, having made arrangements with farmers at specific locations governing where and when their livestock can graze and drink. Occasionally, violent conflicts emerge between members of the two groups. Historically, however, the relationship tends to be symbiotic. Farmers benefit from payments and livestock excrement to fertilize their crops, and pastoralists nurture their livestock on the land of the farmers. Pastoralists benefit from the crops of farmers for their own nutrition and survival, just as farmers do from the dairy products derived from livestock of the pastoralists.

As available fertile land diminishes, farmer-farmer and farmer-herder tensions rise. Lake Chad, once the world’s 6th largest freshwater lake, borders Cameroon, Chad, Niger, and Nigeria. By 2000, its shallow waters had shrunk to less than ten percent of their area in 1983, with devastating social and economic consequences for adjacent countries. Farmers, pastoralists, and fishermen lost livelihoods. Unsurprisingly, the Lake Chad region has experienced a great deal of conflict; with at least 2.4 million people forced to flee due to food shortages and violence.

With more people expected to flee, there is growing international interest in providing support. In March 2017, the United Nations (UN) Security Council identified climate change effects (drought, crop failure, etc.) and ecological changes as key factors responsible for the instability in the Lake Chad. The UN now plans to facilitate the raising of about $50 billion to regenerate the Lake Chad by transfering water from more abundant lakes in Central Africa. The key goal is to create more jobs in the region. In addition to such efforts, however, the other developmental and governance factors which exacerbate climate change effects in the region must also be addressed.

Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. References are in the original article.

macroafricaintel | Climate change & conflict in West Africa (1)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Climate change is the long-term modification of the Earth’s climate resulting from atmospheric changes and interactions among the atmosphere and other geological, chemical, biological, and spatial factors within the Earth’s powerful energy system. Climate scientists who collect and analyze information about our planet and climate on a global scale report an accelerating global rise in average temperature from the late 19th century to the present, nearing one degree Celsius. Leading scientists view this temperature change, accompanied by sea ice losses, sea level rises, longer, more intense heat waves and other increases in extreme weather events, as robust evidence of climate change.

West Africa is particularly vulnerable due to its high climate variability, heavy reliance on rain-fed agriculture and limited economic and institutional capacity to offset the consequent scarcity and conflict effects. This paper identifies evidence linking climate change and conflict, traces the impact on the population of the West African region, and describes a case, set in West Africa, of conflicts arising from climate change. Finally, the author proposes a model to guide stakeholder interventions intended to minimize the extent of such conflicts.

Evidence linking climate change and conflict
Formal evidence of causal links between climate change and violent conflict is mixed. The dominant view is that climate change potentially contributes to political instability and resource insecurity across the world, and thus poses a threat to peace (see Figure 1). However, critics argue there is no evidence of a direct relationship between climate change and violent conflict. They acknowledge that in some circumstances, and in association with other factors, climate change can induce or worsen conflict – for example among pastoralists and farmers competing for land and water. The circumstances cited by researchers include deteriorating livelihoods, increased migration, changes in the movement patterns of pastoralists, and opportunism by merchants of violence and the political and business elites.

Figure 1: Schematic representation of relationships between climate change & conflict [Adapted from Brown, et al (2007). Climate change as the ‘new’ security threat: implications for Africa. International Affairs 83: 6 (2007) 1141–1154]

The arrows in Figure 1 trace the path from climate change to conflict, while the letters mark potential opportunities for intervention. Reducing the impact of climate change on resource scarcity (A) is a task well beyond the scope of even a large individual nation. At best, nations within a region may be able to cooperate to minimize the impact of resource competition (B) on market prices, thus reducing resource and political conflicts. Examples of institutional interventions at the resource scarcity stage include water rationing, more efficient irrigation methods; pasture management, and natural resource rejuvenation and protection. Interventions in markets, such as resource rationing (C) or price controls are often unpopular, and the resulting conflict may result in political intervention (D).

The consequences of climate change vary with the context. As climate change impacts the world’s physical landscape, it alters our geopolitical structure. For example, drought will increase competition for a diminishing amount of fertile land. Combined with other market forces, scarcity leads to price rises that generate conflict among supply and demand resources, which may result in resource and political conflict (E), especially when prices rise faster than incomes. Rising sea levels will inevitably force coastal dwellers to migrate inland (F), further adding pressure to what are likely to be increasingly scarce land and water resources. When social and political institutions are strong, they can address these conflicts through community leaders, ombudsmen, and other dispute resolution mechanisms. When they are weak, institutional breakdown opens the door to violent conflict (G).

One 2018 Stockholm International Peace Research Institute report finds “there is context-specific evidence that climate change can have an effect on the causes and dynamics of violent conflict in the region when: (a) it leads to a deterioration in people’s livelihoods; (b) it influences the tactical considerations of armed groups; (c) elites use it to exploit social vulnerabilities and resources; and (d) it displaces people and increases levels of migration.”

Several studies find evidence of strong links between climate shocks and conflict. One reports that the risk of armed conflict increases when water is scarce. Another researcher finds that a standard deviation increase in temperature raises the risk of interpersonal conflict by 2.4% and intergroup conflict by 11.3%. Severe drought and water variability owing to climate change are found to cause conflict among farmers and pastoralists in several African countries. Across Africa, researchers report a strong linear relationship between temperature and civil war, with a 1 degree Celsius increase raising the risk of civil war by 4.5% within a one year span.

Hsiang et al. contend that El Niño events bring hotter and drier weather and therefore serve as a model of future climate change. Examining the tropics between 1950 and 2001, they found that civil conflicts were twice as likely to commence in El Niño years as in cooler, wetter La Niña years. They estimate that El Niño may have contributed to 21% of civil conflicts during this period. Other research links the recent conflict in Darfur to climate change, exacerbating pre-existing tensions between farming villagers and pastoralists as rainfall and vegetation declined, and suggests that the government exploited these tensions to foment conflict and bolster its support among specific ethnic groups it favoured. This conflict was marked by violence directed at civilians, with reports of poisoned wells.

A recent study, authoritative in light of the pedigree of its unprecedented number of authors for a scholarly article, concludes that “climate has affected organized armed conflict within countries” and “intensifying climate change is estimated to increase future risks of conflict.” Consistent with other findings, the authors also conclude that low socioeconomic development, intergroup inequality, and weak states worsen already difficult situations.

The research cited above links the environmental impacts of climate change to their impacts on people, identifies the knock-on effects of climate change on the population, and identifies the propensity for these effects to act as sources of stress that may lead to conflict, especially where institutional weaknesses come into play.

Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. References are in the original article.

macroafricaintel | Prosper Africa – America’s renewed outreach

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In June 2019, America’s deputy commerce secretary Karen Dunn Kelley launched the President Donald Trump-led American government’s “Prosper Africa” initiative at the biennial Corporate Council on Africa’s US-Africa Business Summit, which was held this year in Maputo, Mozambique. This was the first cabinet-level engagement by the Trump administration on the continent.

Kelley echoed commerce secretary Wilbur Ross’ views two years earlier, at the same summit held in Washington DC then, about Africa’s relatively high economic growth, increasing urbanization and expanding consumer class.

And even as Prosper Africa is by far the most significant African policy initiative of the Trump administration thus far, it could be objectively inferred the continent may still not be a major priority for it by the fact that it was a junior commerce secretary that presented the signature programme on the continent.

Still, and as mentioned by Kelley, America remains the largest donor of aid to Africa. American trade with Africa has been declining, however. US exports to Africa are down 32 percent from a 2014 high, for instance. While not mentioning China directly, Kelley suggests the decline can be attributed to the “increasingly sophisticated but too often opaque business practices of foreign competitors.”

Still, Kelley notes other reasons for the decline in American trade with Africa. Many US businesses seem ignorant of their government’s “export, investment and risk-mitigation tools”, for instance. Another reason, Kelley says, is that American officials working on the continent do not cooperate well enough with one another. In her words, they “too often worked in silos”.

US companies also face significant constraints when doing business in Africa. Poor infrastructure, scanty data, shallow capital markets, hard currency shortages, exchange rate volatility, complicated regulatory regimes, cumbersome customs practices and local content requirements are some examples.

Trump’s Africa initiatives thus far are as follows. The Better Utilization of Investments Leading to Development (BUILD) Act signed into law in October 2018 enabled the establishment of a new frontier markets-focused International Development Finance Corporation.

Months earlier, in April 2018, Trump also signed legislation to increase the number of African countries utilizing preferences under the African Growth and Opportunity Act (AGOA) and increase the flexibility of the Millenium Challenge Corporation. In the same year, the Trump administration also launched “Power Africa 2.0” to help facilitate solutions for the continent’s power shortages.

The American government is also looking to negotiate bilateral free trade agreements (FTAs) with interested African countries. In this regard, it has already signed memoranda of understanding with Cote d’Ivoire, Ethiopia, Ghana, Kenya and Mozambique. But how would these potential bilateral FTAs fit with the recently operationalised African Continental Free Trade Agreement (AfCFTA)?

Judd Devermont, director of the Africa program at the Centre for Strategic and International Studies (CSIS) in Washington DC and former US national intelligence officer for Africa is unequivocal about the answer when I asked him in mid-July. Devermont argues they would not. While acknowledging the significance of the AfCFTA, he asserts “the US government has been disappointingly absent as a voice in support of continental integration.”

Simply put, Prosper Africa is largely a coordination framework. The American government will be providing a one-stop shop that synchronizes the resources of more than a dozen US government agencies to provide technical assistance, capacity-building and so on for the facilitation of transactions. It also aims to ease the trade barriers that constrain American businesses, and indeed African ones as well, on the continent.

Is countering China the key motivation?
There are doubts about whether Prosper Africa is really intended to help African countries. Some believe the motivation is largely China’s currently dominant position on the continent. Such suggestions are not unfounded.

Trump’s national security advisor John Bolton did not mince words about his country’s geopolitical goals on the continent in his mid-December 2018 speech at the Heritage Foundation in Washington DC.

“Under our new approach, every decision we make, every policy we pursue, and every dollar of aid we spend will further US priorities in the region,” Bolton said in what he described as “the Trump administration’s new Africa strategy”.

Bolton also identified China and Russia as key competitors on the continent, arguing China and Russia use corruption and indebtedness to hold African countries “captive”.

CSIS’ Devermont says “Prosper Africa is more than merely an effort to compete with China”, however. He argues it is about increasing American trade and investment in Africa. To buttress his point, he asserts Africa “has been a consistent priority for the United States, and successive US administrations have developed signature initiatives to advance this goal – even before China’s dramatic rise in Africa.”

“Prosper Africa is really about addressing longstanding challenges within the US government that have impeded support for the US private sector”, Devermont adds. However, he acknowledges China’s expansion may have added a new urgency and focus, but considers it inaccurate to interpret the US effort solely in terms of “great power competition.”

Ways to maximize benefits for both sides
In a recent publication by the Brookings Institution, a public policy thinktank in Washington DC, Landry Signe, Rubenstein Fellow at the Africa Growth Initiative of the Brookings Institution and Shanghai-based Eric Olander, managing editor of the China Africa Project (CAP), a multimedia platform on China’s engagement with Africa, suggest US policymakers and business leaders should focus on manufacturing and intra-African trade instead of commodities.

Brookings’ Signe and CAP’s Olander also suggest the US embrace the AfCFTA, which is expected to boost consumer and business spending on the continent to $6.7 trillion by 2030 and annual manufacturing output to $1 trillion by 2025 and create over 14 million jobs.

“For Prosper Africa to benefit both the US and Africa, both sides need to…consider each other as friends”, add Signe and Olander. That is, “Prosper Africa should focus on winning the hearts of African leaders and citizens, as well as addressing Americans’ lack of trust in African countries as reliable business partners.”

An important point raised by Signe and Olander is the need for post-AGOA certainty. Thus far, the Trump administration has not made known whether AGOA would subsist beyond 2025. That Prosper Africa does not clarify the American government’s position on this or announce an alternative is a major shortcoming.

CSIS’ Devermont disagrees. “The U.S. initiative is neither about AGOA nor trade preferences for quota and duty-free entry of certain goods into the United States. I would not interpret that as a weakness or an indication of its sustainability. Prosper Africa is about improving US government coordination to support trade and investment whereas AGOA is focused on access to US markets for African products. AGOA’s future most likely will be addressed in a different venue and in conjunction with the US Congress.”

macroafricaintel | #Nigeria #Banks – Emefiele 2.0

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In late June, Godwin Emefiele, governor of Nigeria’s central bank, unveiled a five-year policy roadmap to guide his second 5-year term. Mr Emefiele desires faster economic growth, slower inflation, more non-oil sector output, greater financial inclusion, ample jobs, stronger banks and more private sector credit extension. To these ends, he announced a raft of new regulatory measures in early July.

Nigerian banks would be required to maintain a minimum loan-to-deposit ratio (LDR) of 60% by end-September. The LDRs would be reviewed quarterly afterwards. In the computation of the LDR, a greater weighting of 150% would also now be assigned to lending to small and medium-sized firms, and that for retail, mortgage and consumption purposes. Should a bank not meet these new criteria, half of the shortfall would be parked at the central bank by way of an additional cash reserve requirement.

The central bank also announced modalities for a single-digit long-term financing initiative for the information technology, movie, and fashion sectors. To engender greater financial inclusion and meet its 80% target by 2020, banks are also now not required to seek prior regulatory approval to offer mobile money services.

Of much interest is the CBN’s recapitalisation drive for banks. While the new minimum capital threshold is yet to be announced, Mr Emefiele’s ambition of having Nigerian banks amongst the top 500 global banks suggests it might be high indeed. What do analysts and portfolio investors think? I asked Malte Liewerscheidt of Teneo, a consultancy in London and Wale Okunrinboye, head of investment research at Sigma Pensions in Lagos.

Malte Liewerscheidt, vice president at Teneo
By advancing new measures, pushing banks to extend their lending activities, the CBN is filling the policy void in the prolonged absence of a new cabinet. Unfortunately, neither the new minimum loan-to-deposit ratio nor the reduced maximum amount for which banks will receive interest on their deposits with the CBN change the underlying conditions that make it unattractive for banks to lend in the first place. In fact, the CBN’s obsession with the exchange rate has led the apex bank to sell more and more OMO securities that offer a high-yield, risk-free alternative for banks, effectively preventing them from handing out more loans to the real economy.

Wale Okunrinboye, CFA, head of investment research at Sigma Pensions
I found the substance of the plan a little unchanged from his inaugural statement in 2014: bold and ambitious about his desires but without the recommended dose of realism that Nigeria’s increased vulnerability to external shocks require. The plan seeks to pursue single digit inflation, high growth and increased banking sector involvement with the economy but makes little mention as to likely trajectory of the key policy anchor (the exchange rate). In line with historical trends, the exchange rate is the eternal obsession of the CBN and one which assumed a larger than life status under his first term.

At the heart of the present FX strategy is a play on offering a high interest rate differential on OMO bills to foreign portfolio investors to shore up the NGN at its increasingly over-valued level. This tactic, which is not a radical departure from policy under Sanusi, is essentially an enlarged bet that external conditions remain benign (dovish Fed + above $60/bbl oil price) over the medium term. That said, the quantum of these FPI inflows into short dated CBN T-bills (>$16b) have become significant relative to FX reserve levels ($45b) which means that any adverse change on the external front would easily derail the plan.

On growth and inflation, to drive a large expansion in the former, we need to see some sizable fiscal policy adjustments which may be potentially inflationary ( flexibility around fuel and electricity prices) and will work to limit the scale of any dovish monetary policy aspirations. Not doing them means economic growth remains at this ‘ijebu’ 2 percent level.

Lastly, just as we are now used to multiple exchange rates, I think we are likely to increasingly see multiple interest rates (one based on CBN intervention funds and another based on market conditions). In all my thoughts are we are likely to see greater unorthodoxy in the event of an unfriendly external environment: not that orthodox solutions offer much hope when fiscal policy makers are not sincere about reforms but an orthodox approach assures on the credibility of CBN forward guidance which markets require.

macroafricaintel | Mobile phones, internet and jobs in Africa (4)

By Rafiq Raji, PhD
Twitter: DrRafiqRaji

On-the-ground AI research to bridge knowledge gap & incorporate African factors
Artificial intelligence (AI) is the ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings. AI research falls into one of three categories: Strong AI, applied AI or cognitive simulation. Strong AI aims to produce machines with human-like thinking abilities. Applied AI or “advanced information processing” seeks to build “smart” systems for lucrative or life-saving vocations like medical diagnosis or stock-trading. Cognitive simulation involves using computers to test human cognition theories.

Global tech firms IBM and Google have established AI research labs in Africa; the former in Nairobi, Kenya and Johannesburg, South Africa and the latter in Accra, Ghana. They are largely applied AI research ventures. These AI initiatives mitigate fears about the likelihood of Western-designed AI systems excluding African preferences and cultures. They also help ensure African researchers participate in global AI efforts; which were hitherto all based outside Africa. Some African AI researchers abroad are seizing the opportunity to return to their homeland. And a next generation of African AI researchers would also now be able to avail themselves of the knowledge and experience without having to venture afar. African governments should be mindful of the ethical motivations of these AI research ventures by global tech firms, however.

Challenges and constraints
Infrastructure remains inadequate, data costs are high, and internet penetration of below 40 percent remains relatively low, logistics can be nightmarish, many Africans remain relatively digitally illiterate, and the regulatory environment is uncertain or even antagonistic. Online marketplaces have been filling the digital skills gap with foreign labour. To manage regulatory and financial risk, major online marketplaces are not only registered outside of Africa but are also tapping foreign capital markets for funding. Both online suppliers and consumers have genuine cause for concern. For example, African governments have been shutting down the internet during elections and protests. The ease with which governments are able to do so exposes the fragility of the internet on the continent. Part of the appeal of the internet is its supposedly “borderless” nature. However, if governments can stop the usage of the internet on a whim, its infrastructural utility diminishes.

Perhaps the only distinction is that such behaviour is not limited to African countries; Russia is building a sovereign internet wall, for instance. Besides, even when the shutdowns are not motivated by government action, the fact that most Africans use the internet via their mobile phones, through networks that are relatively fragile, means that they easily lose access to the internet from time to time due to fault-induced shutdowns. External private actors have also been able to shutdown at least one African country’s internet infrastructure; in Liberia, for instance. Still, many are able to defeat these shutdowns. And legal institutions have surprisingly proven to be resilient in keeping government overreach in check in some African countries.

In any case, calls are being made for some form of global regulation of internet activities. And despite the obvious drawbacks of overregulation and censorship, some African governments are undaunted. They are increasingly looking to tax online activity or have some form of regulatory oversight over the internet in their jurisdictions. For example, Uganda has imposed a social media tax. More recently, Uganda announced plans to nationalise its internet data exchange service, raising fears of inefficiency and likely regulatory overreach in the aftermath.

The internet is a net job creator. Cheaper smartphones and mobile data, a mobile money boom, and burgeoning e-commerce on the African continent are spurring incremental economic growth and creating jobs. Digital IDs, smart and balanced regulation, and certainly much cheaper smartphones and internet would be key elements to achieving these goals on scale. African governments should ensure all their citizens have digital IDs, can make payments digitally, and in collaboration with global tech giants, are able to acquire low-cost smartphones and use the internet cheaply. In the aftermath, they would all be able to participate in online marketplaces as suppliers or consumers.

There is already an example of how private enterprise and governments can accelerate the process. In India, a largely cash-based society, an entrepreneur is already leveraging on the country’s now well-established digital identity system to include all Indians in the digital economy. Recognising high data costs are a constraint for poor people, the entrepreneur is offering data services on his mobile telecommunication network almost for free and almost certainly at a loss in the interim. His strategy is clearly to formalise all Indians, irrespective of class, in a digital ecosystem that enables them conduct almost all their daily activities, from socialising to buying groceries, online. While his ambition is not an ideal scenario, in light of obvious antitrust issues, it exemplifies the potential of the internet and how the digital ecosystem it creates would spur incremental economic activities and create jobs.

African governments have a good example in this Indian case on how the internet opportunity can be operationalised on the one hand, and the potential monopolistic drawbacks on the other. In tandem, government policies should prioritise human capital and infrastructural development. Entrepreneurs should also be able to secure financing easily. These would only be possible if African governments create a conducive business environment in their respective jurisdictions. The job creation thesis of the internet rests on these foundations.

Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. References are in the original article.