Month: March 2019

The capacity and corruption problem in African governments

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This article first appeared in my weekly column with the Business Daily on March 24, 2019

As African publics become more educated about their governments, how they are supposed to function and the services that ought to be rendered to them, a sense of dissatisfaction is clear. In some cases the issue is more about the quality of service/action taken by government with the feeling that it could have been done better. In other cases, the issue is corruption where funds intended for certain projects and services are stolen, leaving millions with inadequate facilities, care and services from government. Thus there are two core challenges most African governments face when delivering on their mandate and responsibility: capacity and corruption.

The African Union released the Africa Capacity Report 2019 which focused on the role of capacity building in creating transformative leadership in Africa. With regards to government, the report points out that there is a clear need for increased investment in leadership capacity development at all levels and that special attention ought to be paid to strengthening the capacity of accountability and compliance entities, such as ombudspersons and anti-corruption and audit units of African governments. In many cases, the inability of African governments to deliver on their mandates has to do with a lack of technical and leadership capacity. Even in cases where leadership capacity is present, translating clear strategy into action is compromised by the lack of capacity at the grassroots levels. Civil servants charged with delivering on government mandates on the ground are often not well supported in terms of the number of people assigned to the task, inadequate financing of their tasks, as well as a lack of support in updating their own skills and abilities.

(source: https://sokodirectory.com/2017/02/eacc-work-business-community-fighting-corruption/)

The second factor is corruption; and while this may be informed by capacity constraints as alluded to in the AU report, often it is not. The problem is usually government officials willingly breaking the law and using the finances and privileges of their office for personal gain. The scale and variants of corruption are staggering. Some government officials blatantly steal public funds, others ask for payments during tendering processes while others roll kickbacks into tenders awarded; the list goes on. What happens at the end of the day from the African public perspective, is that we either overpay for the project/service due to corruption inflating the bill, or we get basically no services at all.

The reality of how these two factors interplay is complex as capacity and corruption problems operate almost on a sliding scale. In some African governments capacity gaps preponderate and compromise the ability of the government to effectively deliver on their mandate. With other African governments corruption is the issue and the moral bankruptcy of some government officials lead them to deliberately negotiate subpar deals for their countries because of the individual kickbacks they have built into the deals they make. And in some cases it’s both, where corrupt government officials take advantage of the lack of capacity in key areas to steal public finances.

At the end of the day, while efforts to address capacity gaps should continue, corruption must be addressed with more vigour. Because you can have the most competent government team in the world, but as long as some African government officials continue to be aggressively corrupt, Africans will continue to be robbed of what is due to them from government.

Anzetse Were is a development economist

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The Inhumane Consequences of Youth Unemployment

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This article first appeared in my weekly column with the Business Daily on March 17, 2019

Last week a newspaper article shared the story of how a 20 year-old woman named Rebecca gave birth to her child by herself in Uhuru Park in Nairobi. Having been fired from her job, kicked out of her home and with no money, Rebecca gave birth unassisted. Rebecca’s experience is heart wrenching and frankly should never have happened. And while she was eventually supported to go to Kenyatta Hospital, the fact remains that she lives in a country where economic marginalization finds a young woman, abandoned, neglected and uncared for to give birth on her own. Her experience brought several disturbing realities to mind because, her core issue is that she had no money. She had allegedly been fired a few days before, had been kicked out of the place she was renting, and certainly had no money to check into any hospital.

Her story brought to mind another case of a young man, Boniface, 22 years old, who unable to pay the bills in the hospital to release his wife who had just given birth, tried to smuggle his own baby out of hospital. This is how desperate life has become for many Kenyans. Can you believe finding yourself giving birth alone in a public park, or being so desperate and broke that the only way out of the situation is to try and smuggle your own baby out of hospital? These stories highlight a serious macroeconomic reality in Kenya; youth unemployment.

Youths demonstrate outside the entrance of a

(source: https://www.businessdailyafrica.com/analysis/ideas/Jobless-Kenyan-youth-sinking-deeper-into-misery/4259414-5029116-hky0w0/index.html)

Youth unemployment should be declared a national emergency because it is just that- forcing young Kenyans to live their lives as a daily emergency. Rebecca is 20 and Boniface 22. Both Rebecca and Boniface are unemployed, and with no government social security net for the young, both are unable to finance even their basic needs. Both stories demonstrate that when young Kenyans find themselves alone and with no financial support, they fall through the cracks and are left to ‘sort themselves out’, or not. It seems this country views young people as a nuisance who ‘need to find a job’. Yet, last year, the Kenya National Bureau of Statistics (KNBS) released a report that revealed that 9 out of every 10 unemployed Kenyans are 35 years and below; the largest unemployment rate was recorded in the age cohort 20–24.

For the millions of unemployed young Kenyans, unemployment means a brutal and harsh life, where every day is gamble, and basic needs an insurmountable challenge to address. And the sad reality is that education does not change much. Many young people have either been financed or have incurred significant debt getting an education and yet find themselves unable to secure a decent job the way the generations before them did.

As a result, most young Kenyans find themselves running informal businesses, working in a sector that has been long neglected by both public and private sector. Young people are expected to entrepreneur themselves out of poverty with absolutely no supportive structures in place, relegating most to subsistence living. And why are young people being told that they all have to be business people? Not everyone is an entrepreneur.

It is a travesty that young Kenyans are being left so abandoned and desperate like Rebecca and Boniface. It says a lot about us when we leave our young to fend for themselves in an unforgiving environment. For how long will we neglect rather than nurture our youth?

Anzetse Were is a development economist

Africa’s Aggregate Demand Problem

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This article first appeared in my weekly column with the Business Daily on March 10, 2019

One reality of those who live in Kenya and Africa more broadly is how vibrant the entrepreneurship space is, and the growing amount of support targeting the African startup ecosystem. Indeed, a venture investment report indicates that there was almost a four-fold increase in total startup funding received for African startups in 2018. The number of funding deals more than doubled and African startups raised a record USD 725.6 million last year. This of course is good news for many businesses in Africa for whom a lack of finance as key constraint to development and growth. However, while the trend in financing is encouraging there is a broader question as to whether all these startups will be able to scale and grow, given aggregate demand issues in Africa.

Aggregate demand is the total demand for goods and services within a particular market. Brookings Institution states that with regards to Africa, while African economies have improved their general macroeconomic conditions and performance, the continent is not creating enough wealth and jobs at a pace that can make significant inroads into sustainably and substantially reducing poverty. That said, if you look at growth in GDP per capita, this stood at about USD 1,574 in Africa in 2017, and grew at about 1.85 percent between 2000-2017. This means not only are there more African consumers, the income available for each African to buy goods and services is also slowly growing. The combination of a growth in population and a growth in GDP per capita makes Africa a fast growing market, in principle.

Image result for Africa market

(source: http://www.travelstart.co.ke/blog/15-street-markets-must-visit-africa/)

However, there are two key factors that affect the strength of an increase in GDP per capita on a growth in an ability to consume and therefore lived aggregate demand. The first is inequality; and here Africa has serious problems. The UNDP points out that 10 of the 19 most unequal countries globally are in Sub Saharan Africa. Thus, although incomes may be growing as a whole in Africa, far too many still live in poverty and often cannot afford basic goods and services. As a result, businesses in Africa are fighting for a fairly limited number of Africans to buy goods and services; and this competition for African pockets will invariably inform the ability of thousands of startups in Africa to scale and grow.

Secondly is that fact most African countries have no social safety net. The aggregate demand that could be generated by incomes of those with stable and regular income, the African middle class, is diluted by meeting the basic needs of loved ones in poverty and low income bands. Thus, while the African middle class may have the propensity to consume, the reality is that their spending decisions are informed by meeting the needs of others, as they are the social safety net for millions of Africans. This then raises questions as to how the African middle class balance the diversion of income from what they view as important support to others, with directing that spending to new goods and services offered by startups.

Image result for Africa middle class mall

(source: https://foreignpolicy.com/2011/05/06/middle-class-africa/)

In short, Africa is a growing market, but there are structural issues with regards to whether incomes translate to new purchases given the structural features of the continent’s economy. It is important that new entrants into Africa, are clear as to which income segment is their target segment, and the extent to which inequality and strained middle class pockets will inform the uptake on new goods and services

Anzetse Were is a development economist

Need to build coordinated SME ecosystem in Africa

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This article first appeared in my weekly column with the Business Daily on March 3, 2019

The Sankalp Africa Summit 2019 occurred about ten days ago in Nairobi and brought together local and global players active in the development and support of African SMEs. A plethora of entities were present from academic institutions and accelerators to financiers (angel investors, venture capital, private equity), development finance entities, business linkage and networking bodies as well as African SMEs, specifically social enterprises. Those who attended were from countries all over the world in Africa, Europe, USA and Asia. As a speaker and participant of the conference what was abundantly clear was that there is a great deal of interest and activity focused on building responsible business in Kenya and Africa. And support towards this cause ranges from financing, to research and technical support, to supply chain linkages as well as business development support. There are three observations that gave me pause for thought as I interacted with Kenyans, African and global players so passionate about, and also knowledgeable about Africa SME development.

Image result for sankalp Africa 2019

(source: https://africasummit2019.sankalpforum.com/)

First is the lack of government presence in the coordination of the demonstrated interest in African SME growth and development. Kenya, for example, lacks a fundamental institutional framework and strategy for the development and growth of SMEs. As a result, all the interest and support implemented by local and global players is being under-leveraged. Kenya, and many African countries which also usually have no government SME development strategies and structures, fail to deliberately aggregate and coordinate the expertise and capacity clearly interested in the African SME space. This leads to a wastage of expertise, replication and subpar peer learning.

Secondly, and linked to the lack of coordination, is the lack of aggregated business deal generation. As someone who interacts with both SMEs and financiers, I’ve seen a clear gap in linking financing needs to financing capacity interested in Africa. During Sankalp what became clear is that such forums are a key space where SMEs meet financiers who could possibly be the right fit for them. But this is not enough. There has to be a more coordinated effort to link SMEs to financiers, as well as graduate SMEs from one type of financing to the next. The lack of such linkages leads to two problems. First, SMEs complain that there are no financiers interested in partnering with them to grow. Second, financiers complain about a lack of a deal pipeline, namely viable businesses that can be credibly financed. This has led to the perception that Africa cannot absorb the scale of capital theoretically available to the continent. This is not true; the problem is linkages and aggregation. What is required are more platforms and entities that link viable SMEs with interested financiers and aggregate business deals.

Finally, is the issue of support structures for SME development; financing is not enough. Many seem to forget that many African countries are very young on their journey in private sector development. So while there is a financing need, an ecosystem that provides niche expertise, long-term partnership and technical/ technological support is also key. Without such an ecosystem of partners, capital will likely be underleveraged.

Anzetse Were is a development economist