This article first appeared in my weekly column with the Business Daily on June 9, 2019
Global headlines over the past few weeks have been awash with news on the escalating trade tensions between China and the United States of America (USA). As usual the commentary has been dominated by what this means for the USA and China. Refreshingly however, there has also been commentary on how the trade fall out will affect Africa. In my view, there are two core issues to consider as one analyses the effects of the USA-China trade war effects on Africa.
Firstly, the immediate effects will depend on the structure of the African economy. For commodity reliant economies, who over-rely on massive commodity exports (fuels, metals and minerals) to China, the trade fall out will be a problem. Countries such as South Sudan, Angola and Zimbabwe which currently export raw commodities to China and basically rely on that export route for forex earnings, should be worried. On the other hand, African countries with strong agricultural commodity export capacity on agricultural commodities subject to tariffs, may stand to benefit. For example, some reports indicate that soybeans from Africa have been in high demand and are far more lucrative since China slapped tariffs on soybeans from the USA. Thus interestingly, the USA-China trade fallout is worsening what has been the long-standing problem of reliance on raw commodity (fuel, metals and minerals) exports by some African countries. In others, it is creating an opportunity to deepen exports with China in agricultural commodities.
Secondly, the USA- China trade fall out is prompting a renewed focus on Africa for both countries, in dockets out of their traditional areas of strength and interest. China’s interest in Africa has been primarily focused on commodities (metals, fuels and minerals) and infrastructure development. The USA’s strength has primarily been FDI and private sector development in Africa. Both countries seem to be actively moving outside these areas of strengths to buffer themselves from each other.
Last week Reuters reported that the U.S. Department of Defense is in talks with rare earth miners across the globe in order to find diversified reserves outside of China; Africa is a key party in such talks. Because, ‘although China contains only a third of the world’s rare earth reserves, it accounts for 80% of U.S. imports of minerals because it controls nearly all of the facilities to process the material’. The US is actively diversifying away from that vulnerability and pivoting towards Africa. With regards to China, the Chinese government has become alive to the power of private sector China in Africa and is encouraging Chinese investors to invest and direct FDI into Africa. While this was occurring already, the trade war with the USA provides added impetus for Chinese investors to direct money away from the USA to other continents such as Africa, and diversify away from US markets by taking African markets seriously.
The main role for Africa governments and private sector is to assess the impact of the trade war given their economic structures and business models, and deliberately leverage this reality towards African development and growth. Gone are the days of being idle when elephants are fighting. Africa must be proactive.
Anzetse Were is a development economist
This article first appeared in my weekly column with the Business Daily on June 2, 2019
Last week I had an unpleasant experience when a loved one had to have their international flight rescheduled because of weather issues. The ticket was then rescheduled but the airline issuing the ticket could not determine if the new flight details were in their system. While the situation was eventually resolved, the reality is that the airline, like many airlines, aggressively markets seamless connections and access to multiple destinations through their airline network. The reality however, is that the system doesn’t work like that, especially in an emergency. The product experience did not match promises made in marketing slogans.
Clearly this phenomenon is not unique to airlines. Most customers, when dealing with businesses, often find that there is a fundamental disconnect between what the business says it will do, and what it actually delivers. Clearly in the drive to get new customers and drive profits up, promises are made that the corporate system simply does not meet. And this is not only frustrating, it’s dishonest and wastes the customer’s time and money. These issues are of particular concern in a country like Kenya when many with significant financial constraints, spend money on a product and then find it impossible to use the unique selling points they were sold when making the purchase. Not only does that fail to translate to an efficient use of the funds spent by the customer, it puts the burden on the customer to spend an inordinate amount of time and money trying to figure out what is actually feasible.
This situation is exacerbated in business to business connections, particularly when an SME is dealing with a large company. To the SME, the large company is often an anchor player in the delivery of their business model. But often, to the large company, the SME is a fairly minor player as an individual business, to its bottom line. This power imbalance often means that the SME is sold a package the large company has, sometimes specifically targeting SMEs, promising that the large company is the best partner for the SME. However, when an emergency or crisis occurs, the reality is that the disconnect between the marketing that was sold to the SME by the large company becomes a costly inconvenience to the SME. The SME often has to spend an inordinate amount of time and money, trying to figure out how to tap into the features of the product that were marketed to them by the large company and discover what is feasible. And if the large company can afford to lose the business of the SME, they may not address the needs and requirements of the SME in a timely and efficient manner. Thus again, the SME is the one left bearing the burden of the large company not delivering on marketed promises.
In short, it is time companies become honest about what they can actually deliver. Either they need to fundamentally rethink their advertising and stop misleading customers on what they can actually do, or they need to restructure their businesses to deliver on marketing promises.
Anzetse Were is a development economist
This article first appeared in my weekly column with the Business Daily on May 19, 2019
There are several factors that inform the extent to which a government is able to develop a vision for the country’s development, and actually implement it consistently over time. One key factor is the seriousness with which qualified and experienced technocrats are taken. The emphasis is on qualified technocrats, not unqualified individuals who have been given technocratic positions.
Qualified, experienced and creative technocrats, when operating in an environment underpinned by transparency and accountability can play a crucial role in steering a country’s development towards more prosperity and equity. Sadly, many African countries have challenges with taking qualified technocrats seriously. There are several factors that inform why most African governments often underplay the extent to which technocrats can inform long-term, sustainable development.
The first is the simply how young African government institutions are. Most independent African governments are about fifty years old, and in reality they are much younger if you take out years of civil war, dictatorship and aggressive interference from foreign governments. The fact that government institutions are so young, often means that the institutional structures that would allow technocracy to flourish often do not exist. Institutional structures such as robust financing practices, performance based contracting, project management systems and result delivery structures are weak. As a result, in many government bodies, one will find that the institution is only as good as its leader. If a given government body has a motivated, accountable and effective leader, a great deal can be accomplished.
This is being seen in Kenya under devolution and the rise of county governments. It is often be easier to make development progress with governor who appoints qualified technocrats, and demands accountability and performance than with a governor who fills the cabinet with friends and relatives who have no technocratic capacity and facilitates a lack of accountability. The same can be said of National Government bodies. Thus, political processes aside, the fact that government bodies are so young, means that the leadership will often define the extent to which qualified technocrats will be able to steer the development of that government entity.
The second factor, is five year election cycles. When juxtaposed with young and often weak government institutions, what often happens is that the country’s development is politically driven, speaking to what is politically expedient during the election year. Yet politicians make election promises that require serious technocratic competence to achieve. But once a government is elected, what sometimes happens is that some technocratic appointments are made with political expediency in mind, not competence or implementation capacity. Further, five year election cycles often mean that top technocrats are replaced depending on which government is elected. As a result, there is often no consistency at the technocratic level, that allows a development plan and vision to be implemented through five year election cycles.
It is important that Africa begins to grapple with these serious issues. For as long as governments fail to deliberately build robust institutions, and continue to view technocratic positions through the lens of political expediency, it will be very difficult to tap into the considerable experience of African professionals, and develop the ability to not only create a credible vision for the continent, but implement it consistently over time.
Anzetse Were is a development economist
This article first appeared in my weekly column with the Business Daily on May 12, 2019
A few weeks ago, the Kenya National Bureau of Statistics (KNBS) released their annual Economic Survey which indicated fewer jobs were created in 2018, than in 2017. In 2018, a total of 840,600 new jobs were created; this figure was 897,000 in 2017. As usual, the informal sector dominated in job creation, creating 83.6 percent of all jobs. The Economic Survey also revealed that the total number of self-employed and unpaid family workers rose from 139,400 in 2017 to 152,200 people in 2018.
These statistics point to three job related challenges in Kenya. The first is that last year fewer jobs were created, despite the fact that each year about 500,000 new entrants enter the job market, let alone those already in the job market but unemployed and job-seeking. In a year where GDP growth was stronger than the previous year, why was job creation so low, particularly formal job creation?
Secondly, the survey pointed to the continued trend in the informal sector dominating job creation. But due to the lack of investment in informal businesses in terms of physical premises, access to finance, access to relevant technology, increased market access and skill updating, the quality of jobs created is low. Jobs in the informal sector are often seasonal, and do not come with the secure wages, job security, health and safety standards and benefits of formal jobs. As a result, the lived job experience of most Kenyans, is low quality. For example, informal sector manufacturing sites and markets often lack basics such as reasonable sanitation facilities, access to electricity and adequate/safe physical structures, let alone access to the specialised facilities required for their specific sectors.
Finally is the issue of involuntary self-employment and unpaid work. The story is often told of the young university student whom, after graduating, spends a few years looking for a job and seeing none in sight, decides to start a business activity in order to make an income. In a country where there is no government social security net for the unemployed, most Kenyans end up starting some type of entrepreneurial activity in order to survive. But if you were to ask many, they are involuntarily self-employed. Many want a job, but the limited availability of jobs forces most in self-employment, or even worse, unpaid work.
There is a trend in Kenya and much of Africa, of formal companies, with reasonable budgets, offering to pay people, especially the youth, in what they call ‘exposure’. The company argues that the exposure that Kenyan will get in presenting their skills at their event, is sufficient payment. And because many are desperate, and looking for a break into a stable job, especially in the formal sector, they accept ‘payment in exposure’ even for years. This is blatant exploitation. If a company uses the talents and skills of Kenyans, especially young Kenyans, as part of their company activity, they should pay for it and stop paying people via ‘exposure’. You can’t eat or pay your bills with exposure.
An environment where the demand for jobs, especially formal jobs, outstrips supply, creates conditions where exploitation runs rife. It is important that the challenges related to job creation and quality elucidated above, are not exploited but rather provide impetus for responsible and just behavior.
Anzetse Were is a development economist
This article first appeared in my weekly column with the Business Daily on May 5, 2019
Last week, the Chinese government hosted the second Belt and Road Forum, inviting countries around the world to engage in the conversation on the Belt and Road Initiative (BRI). Of course, African countries are key players in the BRI not only because it serves interests from the Chinese government and private sector, but also because the BRI provides what African governments view as an opportunity to meet the continent’s infrastructure deficit. During the Forum, key developments occurred that affect African governments, one of which concerned Kenya.
It was revealed that the Kenyan government failed to secure USD 3.68 billion from China (in loans and grants) to take the Standard Gauge Railway (SGR) from Naivasha to Kisumu, and on to the Malaba border with Uganda. The Kenya government has consistently sold the SGR as a key infrastructure development and investment it has made on behalf of the Kenyan people. And yet, during a conference focused on infrastructure financing from China, their core infrastructure financing objective from China was not met. The question is, why? And what does this mean for Kenya? In my view this is good news and demonstrates a seriousness from the Chinese government that perhaps the Kenyan government didn’t anticipate.
Firstly, Kenyans seem relieved by this development. Kenyans have grown weary of what they view as a government with fundamental problems with corruption and fiscal accountability, continuing to secure massive amounts of debt. In declining to finance the final stages of the SGR, this seems to signal the Chinese government is coginsant of these concerns. Financial feasibility is a core concern, and given the serious problems with corruption linked to the previous phases of SGR that the Kenyan government has clearly seemed unable to resolve, why should they get more money? So diplomacy issues aside, money is money and it has to be feasibly and prudently used. China has signaled that there are pending issues to be addressed and they have a keen interest on how their money is used.
Secondly, it has given the Kenyan government pause for thought. When what has been profiled as an important diplomatic and developmental project fails to secure financing from the Chinese government, the Kenya government is being asked what went wrong? As a Kenyan economist, this signals that as far as China is concerned, it’s not business as usual. The SGR is an anchor BRI project, and yet it has been put on hold. The Kenyan government needs to use this as yet another signal, that there are fundamental problems with its financial accountability structures. There are no shortcuts on this issue.
Finally, it signals a shift in China’s approach to lending and debt to African governments. While Ethiopia got debt relief, Kenya was unable to secure new debt. So a willingness of China to lend or forgive debt is not the issue. Context is important. In some cases, China has communicated a willingness to forgive debt, in other cases, such as Kenya, China has made it clear that core concerns have to addressed before substantial debt is conferred.
In short, the Belt and Road Forum is a key turning point in how China lends to Africa. It is up to each African government to demonstrate that it is a responsible custodian of public finances. Not because of China or any other external party, but because their countries will never develop as long as African governments continue to misappropriate public funds. Let African governments play this as they will, African publics are watching.
Anzetse Were is a development economist
On April 4, I was a guest on CGTN’s Global Business with Ramah Nyang. With 22 countries having ratified the African Continental Free Trade Area (AfCFTA) Treaty, it’s set to take effect from May 30 2019. But will the
#AfCFTA be just another colossal AU dud? As I suggest, “we’ve got to get rid of the paranoia.”
This article first appeared in my weekly column with the Business Daily on April 28, 2019
As a development economist, I am often asked why Kenyans and Africans often do not feel the effects of the economic growth of their countries. Last year Kenya’s economy grew at about 6 percent, East Africa’s at 6.1 percent, and Africa’s at 3.2 percent. Yet, many are of the view that incomes continue to be strained and financial stress more accentuated. So where does all the growth go? There are several factors behind the disconnect between economic growth and feelings of economic welfare in Africa.
The first is that, in some countries, while the economy is growing, GDP per capita growth is in negative figures. GDP per capita basically divides the country’s GDP by its total population. Some argue that it’s a useful gauge to determine how prosperous a country feels to each of its citizens. To be clear there are problems with using GDP per capita alone to determine economic well being as it does not account for purchasing power parity or inequality, but it does give a general sense of whether the economy is growing such that each citizen has more when the total GDP is divided evenly. And here Africa has a mixed picture; while most countries are registering increases in GDP per capita, some are not. Some Africa countries have negative GDP per capita growth which means GDP growth is not keeping pace and in some cases, citizens are economically worse off than the years before.
But this is not the case in most of Africa, and certainly not East Africa. GDP per capita has been growing in most of Africa and East African economies are top performers according to some estimates. Kenya has certainly been registering positive GDP per capita growth. So the question is why, even in cases where the economy is growing well, and GDP per capita is increasing, do most Kenyans and Africans not feel these effects? The simple answer is income inequality but in Africa, it is useful to unpack this through the lens of informality.
In Kenya, 83 percent of employed Kenyans are in the informal sector, which contributes about 35 percent to the country’s GDP (highest estimate I have found). Data problems aside, the bottom line is that when 83 percent of employed labour contributes 35 percent to GDP, it means that 17 percent of employed labour contributes to and enjoys over 65 percent of GDP. Thus, profits, income growth and growth in economic prosperity are skewed towards formal labour. And while there is still significant income inequality in the formal sector, the formal sector is far better at being an anchor of economic welfare than the informal sector in terms of wages paid, wage growth, job security, and job quality.
This imbalance is why many do not feel the effects of economic growth. The returns of the hard work and effort of millions of Kenyans and Africans in the informal sector are paltry and keep most at a subsistence level of living. The irony is that despite being the biggest employer in the economy, African governments continue to neglect this sector. The economic welfare of Kenyans and Africans would improve if the informal sector was provided with the concerted support it requires to become a powerful engine of economic growth everyone can feel.
Anzetse Were is a development economist