Month: March 2018

The Middle Class Conundrum in Africa

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This article first appeared in my column with the Business Daily on March 25, 2018

With the emergence of ‘Africa Rising’ narrative, came the related rise of interest in the ‘newly forming’ African middle class. To be clear there are various definitions of this demographic group, but I think the most realistic definition is those who earn between KES 850,000- 4 million a year. You need to be making just over KES 70,000 a month to fit into this qualification. However, even with this relatively generous definition, this middle class is very fluid, limited and difficult to pin down as a ‘steady’ income group.

Indeed, perception and image aside, one can argue that the actual middle class segment that consistently fits within that definition is smaller than often imagined because dropping out of middle class into low income is very easy. That said, there is a middle class present in Africa and one of the key misconceptions of this class is that they have sizeable discretionary income. The reality is more often that the middle class has several classes of priority spending and have to negotiate the use of their own money beyond meeting their basic needs.

Image result for middle class africa

(source: https://www.africa.com/consumerism-rise-africa-2/)

Often the spending power of the African middle class is wildly over-stated in terms of funds for discretionary spending. This is because the lack of a robustly government-financed social welfare net translates to the middle class financing social security services through their own money, thereby eating into ‘non-essential’ spending. The Panglossian narrative about the spending power of the African middle class ignores the fundamental pressure that African middle class pockets feel. Busy supporting friends and relatives, there is often little left over for indulgent spending for many people.

That said, aspirational capitalism has taken root in Africa. Many Africans want big cars, big houses, engage in leisure activities and buy luxury goods. Many are of the view that having worked hard for their money, they ought to spend some of it on themselves. There is even an emerging trend, particularly among the younger middle class, of getting lines of credit to buy furniture, music systems, and go for lunches at high-end cafés; such is the pull of the lifestyle. And while some may choose to spend their cash (or loans) on themselves, it does not negate the fact that many will forgo those purchases to support friends and family in need.

Image result for poor africa

(source: http://www.our-africa.org/poverty)

Ergo, African middle class pockets are pulled in two directions: financing friends and family in need, or using ‘extra funds’ for self-indulgent spending. The weight given to each of those sides is often a personal choice that many must negotiate. It is not a simple choice, and the decision-making process is very personal, nuanced and complex.

Thus companies, particularly those with limited experience in Africa, ought to be careful of boldly strolling into Africa in order to tap into the middle class because not only is it easy for many target consumers to slip into low income, other priorities compete for the same resources.

It is time those watching the African market create more nuanced analysis of this income segment and take the time and effort to truly understand the strange and complex creature that is the middle class African.

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

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TV Interview: Reduction of the interest rate

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I was on CGTN discussing the decision of the Monetary Policy Committee to reduce the Central Bank Rate, in the context of an interest rate cap.

Shifts in China Africa Should Watch

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This article first appeared in my weekly column with the Business Daily on March 18, 2018

Over the past few weeks the Two Sessions of the annual meetings of the national legislature and the top political advisory body in China, have been happening. A great deal of attention has been focused on this Two Sessions perhaps because this is the first annual sessions opened under the guidance of Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era. There are key points of interest for Africa.

The first is President Xi Jinping’s focus on Socialism with Chinese Characteristics; he delivered a speech on this in October 2017 to the National Congress of the Community Part of China. One of the key takeaways for Africa is not only how he sees the role of democracy within the context of Chinese socialism, he also made the point that it is time for China to have a say in the realm of ideology. It is not a secret that Europe and North America have been very overt and aggressive in selling democracy as a governance and political ideology to Africa for decades. It seems that Xi Jinping is hinting that it is time for China to have a stronger presence in this ideological space and share the principles of Socialism with Chinese characteristics with the world.

Image result for xi jinping

(source: https://www.project-syndicate.org/commentary/china-party-congress-xi-legacy-by-keyu-jin-2017-11?barrier=accessreg)

This is important because this Two Sessions occurs during a time of growing insularity, xenophobia and inwardness in Europe and North America. Indeed, reports indicate that China projects diplomatic spending to hit USD 9.5 billion this year, double 2013’s outlay. The Trump administration, indicates momentum in the other direction and has proposed spending of USD 37.8 billion, down from USD 55.6 billion last year. Given these dynamics, it will be interesting to see if or how Xi Jinping will make bolder steps so that China becomes a true global leader, which includes power in the realm of global ideology, and the extent to which Africa will be a point of focus.

The second key point of interest of the Two Sessions for Africa is the intent to stem corruption in the Chinese government. A key focus of Two Sessions was to ratify a law to set up a new powerful anti-corruption agency. Africa’s struggle with corruption is a well-known fact, and for the most part, African governments have seemed either unwilling or unable to control corruption in their ranks. Africa will therefore have great interest in seeing how the anti-corruption agency will be structured, the powers it will be given and how those found to be corrupt will be penalised.

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(source: http://www.cubainformazione.it/?p=21091)

Thirdly, this Two Sessions has seen the growing importance of environmental concerns as a government priority.  This seems to stem not only from an understanding in the Chinese government that environmental degradation must be addressed as a strategic concern for the country and economy, but also as a response to growing demands from the Chinese public for responsible environmental behaviour and action as part of the country’s development model going forward. This is a shift Africa welcomes and there will be interest in seeing the extent to which environmental concerns will be integrated into Chinese activity on the continent going forward.

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

 

TV Interview: What Can Africa Expect from China’s Two Sessions?

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In this CGTN interview I highlight the implications of the Two Sessions, China’s most important political gathering, for Africa.

Dynamics of Innovation in Africa

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This article first appeared in my weekly column with the Business Daily on March 11, 2018

Last week I attended the Innovation Summit organised by The Economist magazine. The event was focused on digital transformation for accelerated growth in Africa. There are several points I want to share concerning the interface between the public and private sector, and innovation.

With regards to the private sector, an interesting point raised is that innovation targeting private sector must have a business case for adoption otherwise the innovation won’t be absorbed. Innovation must demonstrate that the short term inconvenience of adoption will pay off in the long term. Private sector is skeptical of ‘model changes’ and any model claiming innovation must be clear on the value it will deliver. So innovation must provide a proof of concept before it can be adopted and scaled.

Image result for innovation

(source: https://mindwerx.com/strategic-innovation-innovation-simple-not-easy/)

Secondly, the lack of data in Africa means we don’t know what the real situation is on the continent but more importantly it means that the data that we do have is over weighted and given extra significance that it not necessarily merited. We have a real problem with information asymmetry and data bias. Data is the core of innovation so Africa must solve this problem if we are to make informed strategic decisions.

Thirdly, private sector must deal with the fact that the lack of data on the continent impedes the absorption and spread of innovation because strategies for market penetration and sharing cannot be rolled because the lack of data means private sector is often going in blind. Private sector often doesn’t know where the market sits. So private sector innovation may have created a valid solution, but the lack of data makes penetration and scaling very difficult.

Additionally, public sector needs to know that rent seeking and corruption cancel the benefits that could have been accrued by innovation. Africa cannot fully leverage innovation with strong networks of corruption in place. As long as government engages in corruption, Africa will not fully leverage the benefits of innovation.

That said, sometimes innovation from private sector is not quickly adopted by government which frustrates private sector. Slow adoption by government is often because government is obligated to ensure the innovation does no harm, a factor that may not feature strongly in the private sector lens. Indeed, sometimes government policy is so stringent that it stifles innovation.  But the question is, how can government policy be structured to foster innovation while ensuring the innovation won’t inadvertently do public harm?

Form left: Arab Bank Economic Development in Africa director-general Carlos Lopes, Safaricom chief innovation officer Kamal Bhattacharya and ICT principal secretary Victor Kyalo during the Innovation Summit Africa 2018  in Nairobi last week. PHOTO | SALATON NJAU | NMG

(source: https://www.businessdailyafrica.com/analysis/ideas/Hurdles-facing-Africa-innovation/4259414-4337106-8x338x/index.html)

Another point of concern is what Africa needs to have in place to leverage innovation. How can Africa fully leverage innovation if basics are not taken care of? Sure we can leapfrog things like telephone lines but innovation will be crippled if issues such as infrastructure are not addressed. Some basics have to be in place for innovation to really work.

Finally, often innovation in Africa is rooted in the lack of key services by government. Private sector innovation is often rooted in developing a solution that plugs the gap that government services should fill. So what’s the way forward? Does government enable private sector to go on with the innovation or does government adopt the innovation and take over? What are the cost implications? Is there a mandate problem?

Anzetse Were is development economist; anzetsew@gmail.com

 

TV Interview: The State of Unemployment in Kenya

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On March 4, I was part of a TV panel discussing the state of unemployment in Kenya, the concerns, dynamics and recommendations on the way forward.

Three Options for Fiscal Policy

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This article first appeared in my weekly column with the Business Daily on March 4, 2018

The Cabinet Secretary of Treasury, Henry Rotich, it putting together the budget for 2018/19, the first in the second era of devolution, being developed in a context where a second Eurobond has been issued and there is growing concern about the sustainability of Kenya’s debt. This is also the first budget in the second and last term for President Kenyatta and thus can give an insight into the type of fiscal legacy the president intends to leave. Fiscal policy over Kenyatta’s first term has been defined by three main features. The first is subpar revenue generation; while revenue generation has been growing, revenue targets are often not met, and revenue is not growing at a rate that can effectively fund expenditure. The second feature is aggressive growth in expenditure where the 2018/19 budget looks to be about KES 2.5 trillion, up from KES 1.6 trillion in 2013/14. This has led to the final feature of fiscal policy which is an expanding appetite for debt. Rotich has three main options for fiscal policy the 2018/19 financial year.

Treasury CS Henry Rotich can change tack and truly implement aggressive austerity measures. file photo | nmg

(source: https://www.businessdailyafrica.com/image/view/-/4327964/medRes/1899647/-/maxw/960/-/8ncmewz/-/rotich.jpg)

Firstly, the budget can be more or less what has been done in the past. And if one looks at the February 2018 Budget Policy Statement (BPS), it seems as though this year’s budget will be more of the same. Allocations to dockets are within similar ranges as in the past, expenditure has grown aggressively and the aggressive appetite for debt continues. Should Rotich choose to stick to this fiscal path, concerns over the country debt growth will continue to be voiced as it is precisely this fiscal path that has gotten Kenya to the stage at which we are now.

Secondly however, Rotich can change tact and truly implement aggressive austerity measures in the context of fiscal consolidation where concrete policies are created to reduce government deficits and debt accumulation and results tracked. Several bodies have called for fiscal consolidation and thus it would be prudent for the Treasury to heed that call. The concern with previous budgets is that Treasury asserts that austerity measures will be implemented and spending cut, but budget implementation indicates that this does not actually happen. Rotich has a chance to make significant cuts in unnecessary spending, enforce fiscal discipline, allocate more money to development spending and implement measures to ensure development funds are absorbed.

Image result for fiscal policy

(source: https://aarwinsworldoffinance.com/2016/09/fiscal-policy-action-cfa-level-1.html)

The final path is one where Rotich puts significant funds into President Kenyatta’s Big Four and uses expenditure to finance the sectors of health, industrialisation, housing and agriculture in order to catalyse economic growth, create jobs and reduce poverty. Rotich can present the argument that prudent and disciplined spending targeting the four dockets will put Kenya on a growth path where the country hits the Vision 2030 growth rate of 10 percent. Sadly, however, there is no indication of notable fiscal support to the Big Four in the February BPS. There is a section dedicated to the Big Four in the BPS but if one takes a close look at allocations, one finds no difference in allocation patterns that would indicate that the fiscal process is focused on the Big Four.

In short, the budget for 2018/19 will set the tone of fiscal policy making for the next four years and let Kenyans and the world know, the extent to which government will leverage fiscal policy to put the country on a dynamic growth path that is fiscally sustainable and catalytic.

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