The fracturing of the Western Alliance and implications for Africa

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This article first appeared my weekly column with the Business Daily on December 2, 2018


Global geopolitical dynamics have been undergoing significant shifts recently. Of particular interest is the Western Alliance, or the spirit of allied cooperation that had defined the relationship between the USA and Europe for decades. This is changing due to two factors.

The first is Brexit and the fracturing of the European alliance. Through Brexit, divided as the vote was, Britain told the world and Africa that they were unhappy with their relationship with the rest of EU and wanted out. African entities can no longer assume that the approach and priorities of EU strategy in Africa will be done in reference to or coordination with Britain going forward, and vice versa. The bad blood that has emerged between Britain and the EU as a result of Brexit is common knowledge and there are serious questions as to whether there will be any sustainable coordination between Britain and EU in areas such as African policy going forward. What was once a strong European alliance acting in a fairly united manner in Africa, is now a fraught relationship that no longer enjoys the spirit of mutual trust, cooperation and coordination that had defined their relationship for decades.

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The second is dynamic is the souring of relations between the USA and the EU. The EuroAmerican alliance has been one with which the continent has had to contend for a long time. Their joint focus on development, governance, human rights, anti-terrorism and the financing of civil society has been a point of commonality in this alliance. Dynamics have clearly changed since President Trump took over. The Foreign Policy magazine reported that Trump’s views toward the EU have been consistently negative for years and that during the presidential campaign he made several disparaging remarks about the EU. More recently, there has been serious concern in EU capitals that the Trump administration is considering imposing tariffs on EU cars and auto parts. What once seemed to be a stable partnership is being fundamentally challenged and weakened.

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Africa is watching the weakening of the EuroAmerican alliance with interest particularly in the context of a rising China. Africa’s relationship with China is well known, and both Europe and North America have signaled their concern with strengthening Sino-African relations. But quite frankly, the strongest alliances in the world, both within Europe and between Europe and the USA, are falling apart at a time when China seems bent on consolidating its power and expanding its influence across the globe. Given the concern emanating from Europe and North America with regards to Sino-African relations, the time for the unbuckling of the alliance is not now.

What are the implications of this fracturing of the Western alliance for Africa? Will we see the bickering on Brexit and between the USA and EU result in markedly disjointed foreign policy action in Africa? To what extent does the weakening of the alliance deepen a global leadership vacuum that China seems ready to take up? The bottom line is that while old allies grapple with new problems, they are not in a position to effectively stem the strengthening of Sino-African relations in particular. What this means for Africa is that the world is becoming even more multipolar. Where there was once a monolith, stands a body divided. As usual, it is for Africa to read the signs of the times and leverage changing geopolitical dynamics to its advantage.

Anzetse Were is a development economist;


Toxic public debt a chance for African firms to raise capital

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

Kenya’s public debt stands at over KES 5 trillion. Both last year and this year, international finance institutions and development banks such as the World Bank, African Development and the IMF cautioned Kenya over the pace, composition and terms of public debt accrual. But the appetite for debt continues unabated. And Kenya is not alone. The Brookings Institution makes the point that since 2008, public debt in Africa countries has been rising at an increasingly rapid pace and by 2016, the continent’s gross public debt to GDP ratio had doubled. Countries such as Chad, Sudan, South Sudan, Zimbabwe, Cameroon, Ghana, Eritrea, Ethiopia, Djibouti, Zambia, Zimbabwe, Mozambique and of course Kenya have been warned that their fiscal path and debt pile up is unsustainable.

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The composition of debt is of particular concern. Kenya for example has a domestic to foreign public debt split of about 50-50. With the strengthening dollar, the cost of servicing foreign debt will be increasingly onerous. This is in a context of chronic subpar revenue generation with revenue targets routinely revised downwards year on year. Thus, not only is government unable to raise planned levels of revenue, it will have to figure out how to raise even more local currency to service foreign debt as the dollar strengthens.

Another favourite of African governments has been sovereign bonds, and these too are becoming more expensive. Last week Bloomberg reported that spreads on Africa’s sovereign bonds had widened to 506 basis points (bp) above U.S. Treasuries, the most in two years. Te Velde, an analyst, makes the point that at the current rate at which African countries issue sovereign bonds (USD 14bn in the past year), a 2 percent (500bp-300bp) increase in cost of financing, means an increase in future cost of servicing newly issued bonds at more than USD 250 million a year. Let that simmer for a while.

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Now this would perhaps be fine if there were assurance that African governments were using the debt effectively and in an economically productive manner. But even that is not clear. What is clear is that the rapid accumulation of debt by African governments, partnered with serious questions about fiscal accountability will translate to a massive drop in the popularity African governments have been enjoying in local and international debt markets. And this is good news for the African private sector.

Africa’s private sector continues to be under-capitalised and the past decade or so of considerable appetite for public debt from Africa has left most of the African private sector in the shadows. However, creditors are beginning to understand that debt owed by African governments can be toxic. And this presents the perfect opportunity for private sector in Africa to better position itself to domestic and international players for financing. Let the African private sector grab this opportunity and show the world that much of Africa still has its head on right.

Anzetse Were is a development economist;

USA-China Trade Tensions: Implications for Africa

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

The escalating trade war between China and the United States of America (USA) has been at the forefront of global geopolitical tensions recently. While extensive analysis has been produced on the implications of the ‘trade war’ for US and Chinese entities, both public and private, far less attention has been given to the implications for Africa. The truth is that Africa, both government and private sector, view the USA and China as important partners for development and growth. What will a trade war between the two largest economies in the world, who have markedly different styles of economic engagement with Africa, mean for the continent? Simply, the trade war will have both positive and negative implications for Africa.

The US and China are embroiled in a commercial


In terms of the negatives, there are two key elements the first of which is commodities. African countries that continue to be commodity driven and let that define their exports to China will be hit on the commodity lines that supply Chinese manufacturing that targets US markets. Thus, African countries that provide key inputs to China that then manufacture products for US markets will be hit; particularly those products that are targets of US tariffs. The same applies to African countries supplying the USA with commodities that end up in products that target China. At the moment, the USA’s top exports to China include aircraft (USD 16 billion), machinery (USD 13 billion), vehicles (USD 13 billion), and electrical machinery (USD 12 billion). Thus, African countries need to understand the details of the China-USA trade war and its potential impact on commodity exports to both countries.

Secondly, the trade war will put Africa at the centre of a geopolitical tussle between the two countries. Africa is an important geopolitical element of strategy for both countries and the trade war accentuates this. Thus there is a real risk, that Africa may be caught in the crosswinds of the not only the economic cross fire, but in military interests as well.

But there are positives. Firstly, and ironically, commodity driven African countries, particularly oil producers stand to gain from the trade war. In the wake of the trade war, China will seek to reduce its reliance on oil imports from the USA. Thus, China will likely seek to increase the proportion of oil sourced from Africa.

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Secondly, the trade war, makes Africa even more important to each country. During FOCAC, China committed USD 60 billion to Africa. The USA also established the International Development Finance Corporation with USD 60 billion to invest in the developing world, Africa included. Thus as USA and China seek to secure their interests in the context of a trade war, Africa has actually become a beneficiary of the economic diplomacy of both countries.

Finally, the trade war will make the demographics of Africa feature more prominently in the commercial diplomacy of both countries. As both governments begin to diversify away from each other in terms of exports, Africa is one of the fastest growing markets in the world. Not only is the population in Africa growing, GDP per capita is also growing; so there are more Africans and each African is slowly getting richer. Thus, it is possible that Africa’s position as a key trading partner for both the USA and China will rise in prominence as trade tensions between them rise.

As always, it is for Africa to determine whether the trade war between the USA and China, will be a net positive or negative.

Anzetse Were is a development economist;

China International Import Expo: Implications for Africa

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As the world’s second-largest economy, China is now looking to further open up its markets to the world’s economies– particularly African countries.

I was part of a TV panel that discussed the implications of the China International Import Expo for Africa.

How Insurance can drive the Big Four Agenda

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

An interesting question that has been posed, is as to how the insurance sector in Kenya can play a role in the development of the country and the Big 4 Agenda. The focus sectors of the Big 4 are manufacturing, food security, universal health coverage and affordable housing. There are key actions insurance can play in each sector that can enable each sector to strengthen its role in the economy and contribute to the general welfare of Kenyans.

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The first step is for the insurance sector and companies to stop positioning themselves as being an option for ‘rich Africans’ to being a necessity required in a well-functioning economy. In the context of economic development of a young economy like Kenya, insurance has two important roles. The first is as a stabilising presence that signals that certain business activities are deemed credible. The second role of insurance in this context is as a risk management strategy. If the private sector in Kenya and Africa at large seeks to position itself as a safe bet for investors, insurance plays a key role in risk management. There is a need to manage risks linked to agriculture and climate change; risks associated with manufacturing in Africa; securing the health of a large and growing population and providing dignified housing for a significant portion of the population. Thus, in the African context, insurance is a risk management tool.

But there is a more innovative role that insurance can have in catalysing economic development in Africa and each of the Big 4 sectors in specific. In terms of manufacturing, a current pitfall is the lack of a comprehensive insurance package for manufacturers, and in terms of health, insurance is not deemed affordable by most Africans. With regards to agriculture, insurance for small holder farmers who are the custodians of food security, is largely deemed to be uneconomical where payments made are not commensurate to losses incurred in the context of extreme weather conditions or pest damage for example. And in terms of health insurance, that is deemed as a luxury for the rich in Africa.

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But insurance can be a risk management tool by for example, giving manufacturers an insurance bouquet that enables them to manage all their key risks at once. Insurance, through micro-insurance can allow Kenyans and Africans to pay small amounts to secure their health and homes. And for small holder farmers, insurance can play a key role in farmers recovering from unforeseen by bundling insurance with government agricultural credit lines.

In short, the role of insurance in the Kenyan and African economy is undermined because its risk mitigation qualities are underappreciated. Insurance is still seen as an option for ‘rich Africans’. This must change as insurance is a key element of a sustainable African economy rooted in secured long term growth.

Anzetse Were is a development economist;

Kenya’s fiscal missteps must be corrected

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

Last week the International Monetary Fund raised Kenya’s debt distress warning level from low to moderate. This is partly informed by the rapid increase in debt level as well as Kenya’s breach of debt sustainability measures such as the external debt service to both the export and revenue ratios There are three factors to bear in mind as one assesses Kenya’s public debt and general fiscal path.

The first is that Kenya’s public debt is understated because it is not clear the extent to which official figures factor in debt accrued by county governments. For example, the County Government of Nairobi alone is said to have a debt of KES 57 billion. Bear in mind, county governments tend borrow from commercial banks with high interest rates and shorter loan tenures. At the moment there is no clear documentation available as to the scale and terms of all county government debt. This makes is difficult to systematically ensure that all debt owed by county governments is reflected in official public debt figures. Thus, at this stage, it is safe to surmise that Kenya’s debt distress levels are more onerous than official figures suggest and that national debt figures understate the scale of total public debt owed.

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Secondly, the government has a chronic problem with revenue generation. In late October government cut the revenue projection downward by KES 96 billion for FY 2018/19 and by KES 42 billion for 2019/2020. Revenue targets are only revised downwards when it is clear that the original target cannot be met. The reality is that Treasury continues to accrue debt while clearly knowing government is not generating enough revenue. This alone makes it clear that Kenya’s fiscal path is not sustainable. The irony however is that, the Kenya Revenue Authority just released a report indicating that Kenya may have lost up to KES 270 billion in tax over the past 3 years due to tax exemption provisions. It is in the interest of government to better coordinate expenditure with sustainable revenue generation that does not stifle economic growth. Though slower, developing a shrewder tax regime that actually stimulates business activity would be better in the long term rather than slapping a new VAT on a basic commodity such as fuel, as this increases the cost of doing business and production which have negative effects on profit margins and thus taxes paid.

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Finally, government at both national and county levels continue fail to pay their suppliers; this is leading to fiscal problems. As of July 2018, the government was said to owe SMEs KES 200 billion. The failure to pay for goods and services rendered is not only morally abhorrent, it is crippling the ability of SMEs to remain commercially viable. As a result, SMEs affected are making losses which then translates to lower (if any) tax payments. So again, government behavior is causing problems for itself.

Kenya’s fiscal problems are becoming structural in nature. The concern is that the fiscal structure is unsustainable. One wonders at what stage the seriousness of Kenya’s fiscal missteps will be comprehensively addressed so as to address the negative fiscal momentum currently being generated.

Anzetse Were is a development economist;

The Fallacy of China Debt Trap Diplomacy

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This article first appeared in my weekly column with the Business Daily on October 28, 2018

Last month, the South African Institute of International Affairs published my policy insight on the Chinese Debt Trap. In short, Africa’s growing public debt has sparked a renewed global debate about debt sustainability on the continent. This is largely due to the emergence of China as a major financier of African infrastructure, resulting in a narrative that China is using debt to gain geopolitical leverage by trapping poor countries in unsustainable loans. It essentially argues that African governments are being deliberately lured into debt by the Chinese government through debt trap diplomacy and that China has an ominous plan to mire the continent in debt in order to gain economic and geopolitical control of Africa.

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My counter-argument is simple: The debt trap narrative undermines the decision-making power and agency of African governments. Even worse, the debt trap narrative infantalises African governments, painting them as little more than overgrown children who have to be constantly supervised by other powers if there is any hope of them getting anything right.

More seriously, the debt trap narrative is deeply worrying because it is deeply dangerous. Arguing that African governments are being lured or tricked by China actually begins the process of preventing sovereign African governments from being held accountable for the financial commitments made on behalf of the African people. The narrative gives wiggle room for some governments to become intellectually dishonest and say that they did not know what they were getting into as they signed multi-billion dollar deals with China, rather than stand up and be counted. The narrative, in its determination to paint China as the ‘bad guy’, actually begins to absolve African governments of their fiscal responsibility and obligations. It creates space for some African governments to avoid hard questions from their publics about how debt is used, accounted for and whether the debt has led to economic gains and development.


Last week, the Financial Times (FT) took this argument further, pointing out that the heaviest cost for African countries comes from private lenders, not the Chinese. Nearly a third of African governments’ debt is owed to private creditors, but they account for 55 percent of interest payments. By contrast China, is owed about 20 percent of African nations’ external government debt, and receives just 17 percent of interest payments.

And to be honest even if that number were higher and Africa owed China far more, the responsibility for that rests squarely on the shoulders of the Ministries of Finance/ Treasuries of African governments, not China. African governments have demonstrated tremendous appetite for debt and have not only gone to China looking for it, they have floated sovereign bonds and continue to borrow from their traditional partners.

Frankly, the debt trap narrative seems motivated more by frantic Sinophobia than any genuine concern for the economic and fiscal health of African countries. Africans are worried about growing public debt, period. After all, it is the African people alone who will have to pay back all the debt in question. Thus, let the concerns of the African people about the fiscal accountability of their governments take centre stage in the conversation about public debt on the continent.

Anzetse Were is a development   economist,