Autocracy and Democracy in Africa: China’s Influence

Posted on

This article first appeared in my weekly column in the Business Daily on December 10, 2017

I’ve been thinking about China’s growing influence in Africa, and whether it is linked to growing autocracy on the continent, especially the East Africa region. However, it is not China alone that seems to be informing a move towards authoritarianism in the region. When Africa is given examples of countries that managed to catch up economically, the Asian bloc is often presented as the case study. Look at Singapore, Vietnam, China, Malaysia, Japan and South Korea, we’re told, they all managed to pull millions of out poverty and substantially improve the quality of life of their citizens in a relatively short period of time. What is not mentioned is that, for the most part, these countries were developed or are still developing under an autocratic state-led capitalism model where government drives and leads the articulation of capitalism and, to a greater or lesser extent, monitors and guides its evolution.

Related image

(source: www4.pictures.zimbio.com/gi/Beijing+Municipal+Congress+Communist+Party+AYzoNUVRU8Al.jpg)

Africa is also not told that even Europe and North America made significant economic gains using models that were not democratic. The USA relied on the slave trade and slave labour to build wealth that was then used to drive industrialisation. Much of Europe relied not only on financial involvement in the slave trade to amass wealth, but also colonialism which played an important role in providing colonial powers with land and labour that generated immense profits that were then repatriated to European metropoles.  So some are asking: Why is Africa being told that the continent must develop under a democracy when so many others haven’t? And is this the most efficient path towards economic development?

In East Africa, we can see a move towards autocracy; indeed it can be argued that Kenya is the only viable democracy left. Ethiopia and Rwanda have made no secret of the fact that they are essentially autocratic states. Uganda has been under the hand of Museveni for well over 30 years and in Burundi President Nkurunziza seems bent on retaining control and extending his autocratic rule beyond constitutional provisions. In Tanzania, signs of autocracy are emerging given that the chief whip of the opposition party was shot, and President Magafuli shut down several newspapers.

China has been making aggressive inroads in Africa with mega project deals. FILE PHOTO | NMG

(source: http://www.businessdailyafrica.com/image/view/-/4222430/medRes/1832547/-/maxw/960/-/g7bbas/-/china.jpg)

Beyond philosophical questions as to why there seems to be growing autocracy in the region, international dynamics are also playing a role, specifically growing insularity in Europe and North America. The Trump Administration hasn’t even bothered to table a strategy for Africa and Europe seems preoccupied with Brexit, anti-immigration sentiment, and calls to use European money on Europe rather than on ‘others’. As a result, the voice from the global north that lectures Africa on the merits of democracy is receding and the power vacuum is intensifying the influence of autocratic China in Africa. Indeed, the autocracy that is emerging in Africa seems to be modelled more against the technocratic autocracies of Asia rather than the old African autocratic model exemplified by leaders such as Idi Amin, Mobutu, Mengistu and more recently, Mugabe.

It seems it is time for Africa to ask itself some tough questions: Should growing autocracy be encouraged? And if so, what will it cost Africans in terms of freedom of expression, human rights and political freedom? Or is democracy, despite all its problems, still the best way forward for the continent?

Anzetse Were is a development economist; anzetsew@gmail.com

Advertisements

Podcast: China and the rise of Africa’s new autocrats

Posted on

On December 3, 2017 I featured on the China Africa Project Podcast with Eric Olander and Cobus van Staden where we discussed growing authoritarianism, in East Africa in particular, and the role of China in challenging the notion that democracy is the best governance model for Africa.

 

 

How Kenya can recover in 2018

Posted on

This article first appeared in my weekly column with the Business Daily on December 3, 2017

After what has been widely noted as a difficult year for Kenya, the conversation must now turn to how Kenya can recover. The first step to doing so is acknowledging the factors that held economic growth back and those that sustained and propelled growth.

The first sector that was hit was obviously agriculture, due to the drought which made many Kenyans food insecure, hit forex earnings from the export of agricultural commodities and of course led to aggressive inflation. The financial sector was negatively affected by the continued unfolding effects of the interest rate cap and linked to that, credit growth, particularly to SMEs shrunk considerably. Finally, a great deal of investment was held back over the course of the year. Indeed, a few weeks ago, the Kenya Private Sector Alliance stated that the business community had lost more than KES 700 billion in just four months of electioneering. This figure was arrived at by costing not only business lost due to disruptions linked to protest and general unrest, but deferred investment decisions as well.

Image result for agriculture Kenya

(source: https://agra.org/news/wp-content/uploads/2016/11/MWfarmer-maize-green-790×527.jpg)

It is important to unpack the impact of deferred investment because there are negative ripple effects linked to this, particularly in the African context. When investors choose to hold off on investing, several entities are hit. These include market research companies, product developers, manufacturers, advertising companies, suppliers, and distributors. The entire ecosystem around investors suffers as investors make the decision to postpone or defer investment. As a result, the multiplier effect of suspended investment has left many Kenyan feeling particularly financially strapped this year.

On the bright side, Micro, Small and Medium Enterprises (MSMEs), most of whom actually sit in the informal economy, proved to be hardy. The Central Bank of Kenya (CBK) stated that MSMEs showed ‘extraordinary resilience’ and helped cushion the economy. The factors behind this resilience has not been formally unpacked but studies on the informal economy reveal an nimbleness, flexibility and litheness that larger, more formal businesses may find difficult particularly within short time frames. Challenges aside, informal businesses have an ability to change their business models and adapt to a changing environment much faster than formal businesses with more rigid structures and processes.

Related image

(source: http://www.goldmansachs.com/citizenship/10000women/meet-the-women-profiles/kenya-women/mary-kenya/slide-show/mary-slide1.jpg)

Going forward, it is important to take remedial action on what emerged as weak spots. This will begin by ensuring better coordination between national and county government on the management of agriculture in the country as well as serious consideration of the repeal or adaptation of the interest rate cap. In terms of positive aspects, MSMEs ought to be prioritised going forward and given the necessary support by government, financiers and business development agencies to scale formal MSMEs with promise, and support informal MSMEs on the journey of sustained profitability and formalisation.

Finally, both government and domestic private sector have to give candid and honest signals on the state of the political economy in Kenya. Investors need to be given a clear indication of when and where to invest such that the investment ecosystem is sustainably revived.

Anzetse Were is a development economist; anzetsew@gmail.com

 

TV Interview: The Economic Empowerment of Women in Kenya

Posted on

On Thursday November 30, I was part of a panel on Victoria’s Lounge discussing the dynamics and factors that inform the economic status of women in Kenya.

Growing autocracy in the East Africa Region: Implications for China

Posted on

This article first appeared in ChinaFile on November 28, 2017

Though not in the headlines, China is operating in an East African region that is becoming increasingly autocratic and authoritarian. The East Africa region in this article refers to the countries of Kenya, Uganda, Tanzania, Rwanda, Burundi and Ethiopia. It can be argued that in the region, Kenya is the only viable democracy left.

President Kagame of Rwanda has made headlines in the region for what appears to be the open targeting of Diane Rwigara who tried to run against him in elections earlier this year. Ethiopia has been ruled by the same party since 1991, with marked intolerance of opposition, evidenced in the imprisonment of political dissidents. Uganda has been under the hand of Museveni for well over 30 years and in Burundi the International Federation for Human Rights claims the crisis there has left at least 1,200 dead and 10,000 imprisoned for political reasons. In Tanzania, the chief whip of the opposition party was shot, opposition figures have disappeared, and in September, President Magafuli closed a third newspaper since June as part of a media crackdown.

Image result for Eastern Africa

(source: https://elimufeynman.s3.amazonaws.com/media/resources/kenya-img1.jpg)

The trend towards autocracy and authoritarianism in the region cannot be ignored and will have several implications for China. The first is that while it could be argued that it is easier for China to work with governments that do not have to deal with the complications of a robust democracy, there is growing unrest in domicile populations in the region. And although authoritarian East African governments may assure China and the Chinese private sector, that unrest is being ‘managed’, the reality is that it can grow to unmanageable levels, compromising Chinese investments. The Chinese private sector is already feeling the pinch where both last year and this year, protesters in Ethiopia destroyed Chinese factories and assets in anti-government protests.

The second concern China should have is that it is the very authoritarianism in the region that may make countries more difficult to deal with because decisions can be made unilaterally with no consultation or explanation given. It is possible that such decisions could negatively affect Chinese interests in the region and given the strong arm of government in most of the region, trying to seek redress through legal means would likely be futile. Further, China has branded itself through its non-interference policy. Will this position change if the action of authoritarian governments threaten Chinese investments in the region?

Image result for autocracy

(source: img.bhs4.com/34/f/34f19c14318e7c049b8e60d2c327d6d9c16627c6_large.jpg)

Finally, Zimbabwe provides an important lesson for China. China put all of its eggs in the basket of Mugabe’s autocratic rule. With Mugabe no longer in rule, there is surely concern as to how China will protect its investments and economic position in the country. And this is the fundamental problem with China continuing to interact with openly authoritarian governments; China can never be sure that the next ruler will treat them as well as his predecessor did. Will China be prioritised in Zimbabwe as other economically powerful countries and companies jostle to enter the country?

It will be interesting and see how both the Chinese government and private sector continue to operate in a region of growing autocracy and authoritarianism both of which pose considerable risks to China’s investments in the region.

Anzetse Were is a development economist; anzetsew@gmail.com

Priorities for the Next Administration: Fiscal Policy, Informal Economy and Light Manufacturing

Posted on

This article first appeared in the Business Daily on November 29, 2017

With election season over, it is time for the incoming administration to develop priority areas for action. There are three core areas that need urgent attention and should form part of the priority plan.

The first issue is fiscal policy where decisive action has to be taken. Kenya has been on a path of unsustainability defined by aggressive growth in expenditure, subpar revenue generation and growing debt. With a debt burden of KES 4.4 trillion, it is important that the incoming government detail a plan that will put the country on a more sustainable fiscal path. The plan should include strategies to reduce overall expenditure, improve the divide between recurrent and development expenditure, and improve the absorption of development funds. Non-priority spending has to be ruthlessly cut, while revenue collection improved. At the moment expenditure is growing at over 14 percent while revenue collection is only growing at about 12 percent; this is resulting in expanding borrowing requirements. Policy action has to be taken to ensure the growth of revenue collection is higher that growth in expenditure. This issue is urgent because both Moody’s and Fitch (credit rating agencies) are considering a downgrade in Kenya’s credit rating due to our debt position. This would have negative implications in that any new foreign debt would be more highly priced. Thus, government must get expenditure under control, reduce borrowing and improve revenue generation, which leads to the next point.

Image result for National treasury Kenya

(source: https://www.capitalfm.co.ke/business/files/2015/10/TREASURY-BUILDING.jpg)

The second point of focus should be the informal economy where 90 percent of employed Kenyans earn a living. The administration has yet to table decisive action to make the sector more productive and profitable. While the ultimate focus should be to pull more informal enterprise into the tax net, at the moment there are limited incentives to formalise. Threats of increasing taxation of informal business will merely push activity in this sector further underground and even spark social unrest. Instead, national government should create programs in partnership with county governments to improve the productivity and profitability of informal businesses. The program should include support to informal enterprise in financial and business management, improvements in access to and use of technology, improve informal business premises, concessionary financing packages and business mentorship. Over the next five years, a focus on strengthening the performance of the sector will create a boost in incomes which will not only increase the spending power of Kenyans, but also put the sector on a path where plans for formalisation become more feasible. Only through such action can the government sustainably expand the tax net and increase revenue collection.

Image result for informal economy Kenya

(source: https://farm6.static.flickr.com/5062/5581243427_2cf2343c46_o.jpg)

Finally, government needs to focus on truly developing light manufacturing, and that can only happen by boosting agriculture. Whether its food and beverages, leather and leather products, textiles and apparel, a solid agricultural base is required to develop light manufacturing. There are two segments of agriculture that need attention. The first is subsistence farming where over 70 percent of rural labour is locked in largely unproductive agricultural activity. National and county governments have to work with farmers to make their farming more productive, improve storage facilities, help with market access and create options for agro-processing and value addition through light manufacturing. The second segment of agriculture is export-oriented agriculture with it fairly productive, dominant in the sub-sectors of tea, coffee, floriculture and horticulture. Government must create and implement a 5 year plan focused on value addition of this sector by linking export farming to local manufacturing and value addition. Linked to this is the textile value chain which desperately needs revival so that local farmers can supply EPZ firms that tap into the AGOA clothing and apparel market. A process of backward integration is required that builds the value chain from cotton farming, to milling and fabric manufacture, and finally textile and apparel product development and manufacture for export.

If government focuses on these three areas with determination and grit, the next five years can put the country on a more sustainable fiscal path, spur formalisation, expand the tax base, create new and better quality jobs, and reorient the country’s economic structure through building light manufacturing. In doing so, the economy will be more diversified, productive, robust and resilient.

 Anzetse Were is a development economist; anzetsew@gmail.com

Monetary Policy a bright spot in Kenya

Posted on Updated on

This article first appeared in my weekly column with the Business Daily on November 26, 2017

This has been a difficult year for the Kenyan economy. A combination of the drought, effects of the interest rate cap on the economy and the extensive electioneering period all slowed down economic growth and performance. However there has been a bright spot; monetary policy. Monetary policy has played a crucial role in being a stabilising anchor for the country.

Image result for central bank of kenya

(source: owaahh.com/wp-content/uploads/2016/04/CBKpx.jpg)

The first means through which this is seen is in the value of the Kenya Shilling. Given the turbulence of the electioneering period in particular, it was largely expected that the value of the shilling would be knocked. However, through practical action by the Central Bank of Kenya (CBK), the value of the shilling remained relatively stable, hovering at around KES 103 to the dollar.

Secondly, is the effect of monetary policy on inflation. While inflation rate was above the preferred ceiling of 7.5 percent for a better part of the year, it came down to below the ceiling in July, and with the exception of August, has remained below 7.5 percent. The high inflation was, of course, informed by the drought that pushed up food prices and electricity that latter of which pushed up the costs of production. The management of inflation is particularly commendable given than the CBK basically couldn’t use changes in the interest rate, a key monetary policy tool, to manage inflation.

The introduction of the interest rate cap has fundamentally constrained the CBK’s ability to fiddle with interest rates to manage money supply and inflation. The cap has made the effects of a change in the rate unknown, thereby understandably engendering reluctance to change the CBR. Indeed, I am of the view that the interest rate cap has turned monetary policy upside down; an increase in the rate may create an expansion rather than contraction in liquidity, as more people would qualify for the higher rate risk ceiling. And lowering the rate would likely contract rather than expand liquidity as even fewer people would qualify for the lower rate risk ceiling. Thus it is not a surprise that the Monetary Policy Committee chose to leave the Central Bank Rate unchanged last week.

Related image

(source: http://www.mygov.go.ke/wp-content/uploads/2015/08/shilling.jpg)

While on the topic of the interest rate cap, its continued effects are disturbing. Beyond engendering a massive contraction in the growth of credit, it seems the cap may be dampening private sector appetite for credit. No longer qualifying for credit lines on which they used to rely, businesses have likely changed their business models to accommodate this lack of access to credit. Thus, the real test for the economy will begin if or when the cap if lifted, and whether private sector will demonstrate robust appetite for credit, having essentially survived without it for over year.

Again, in the context of a cap, the CBK has played a constructive role in managing the dynamics of the financial sector in two ways. The first is in pushing for a repeal of the cap; the second is in urging commercial banks to price their loans more reasonably. The CBK is using the opportunity created by the cap to try bring sanity to a sector that is largely seen as extractive, saddling Kenyans with very expensive debt all in the name of profit. These efforts by the CBK should be commended.

Going forward, it is important that monetary policy continues to anchor the economy and buffer Kenyans from volatility in the macroeconomic environment.

Anzetse Were is a development economist; anzetsew@gmail.com