This article first appeared in my weekly column with the Business Daily on March 31, 2019
Last week Italy became the first major European economy to join China’s Belt and Road Initiative (BRI). Italy and China signed 29 deals worth USD 2.8 billion, and while the absolute amount agreed to may not be large, this marked an ideological shift where Italy broke rank with other powers in the global north by openly endorsing BRI which has been subject to deep skepticism and criticism in both Europe and North America. Closer to home, Kenya’s Standard Gauge Railway is a key BRI project in Africa and exemplifies the opportunities and risks linked to the BRI rollout in Africa. There are two key issues to manage on both the African and Chinese side if BRI is to be effectively leveraged.
The first opportunity BRI presents Africa is addressing Africa’s infrastructure deficit. The African Development Bank (AfDB) estimates the continent’s infrastructure deficit to stand at USD 170 billion a year. BRI is a clear opportunity for African countries to meet this gap on a long term basis. Additionally, the momentum behind the African Continental Free Trade Area (AfCFTA), provides an opportunity for African governments to link the BRI to the vision to interconnect the continent and increase the movement of people, goods, products and services across Africa.
The second opportunity that BRI presents Africa is further opening the continent up to the Chinese private sector and FDI from China. After years of the Sino-African relationship being defined by government to government deals (and this still dominates), Chinese private sector is increasingly independently coming into Africa on their own terms and with their own visions. BRI opens the continent further to both Chinese FDI and private sector relocation to Africa which presents opportunities for job creation, income growth and increasing Africa’s manufacturing capacity.
However there are key risks linked with the aforementioned opportunities. With regards to plugging the infrastructure deficit, there is clear concern that BRI may further indebt already deeply indebted African governments. When this is coupled with fiscal opacity in Sino-African government deals, there is unease that BRI will not only further indebt African governments, but also debt will continue to be mismanaged by some African governments with no pushback from the Chinese government.
The second risk is to do with the quality of Chinese FDI and private sector engagement in Africa. In many parts of the continent, there are concerns with regards to the extent to which Chinese comply with ESG standards in the countries in which they are domiciled. If BRI opens Africa up more deeply to Chinese private sector engagement, it is crucial that concerns with Chinese private sector activity with regards to ESG standards are addressed.
BRI will best serve both African and Chinese governments and the African people if BRI deals have far more stringent controls with regards to ESG due diligence, financial feasibility and financial transparency. Additionally BRI should be more deliberately linked to AfCFTA and the continent’s vision for interconnectedness. Secondly, the Chinese government should begin to hold Chinese firms active abroad to Chinese legal and ESG requirements. This will prevent laxity on ESG standards on the part of African governments from being misused and ensure that Chinese private sector activity in Africa is holistically beneficial to African publics.
Anzetse Were is a development economist
This article first appeared in my weekly column with the Business Daily on August 26, 2018
In early September, African Heads of State and Dignitaries will gather in China for the Forum on China Africa Cooperation (FOCAC). Inaugurated in 2006, FOCAC has become a symbol of the strengthening ties between China and Africa. However, it should be asked how Sino-African relations got here in the first place. Given that China is a relative new comer in Africa in terms of sustained engagement, how did China get so big in Africa so quickly?
There are three factors that have informed the rise of China in Africa. The first is the lack of a negative legacy with the continent. Europe and the USA have a fraught history with Africa. The combination of slavery, colonialism, the post-independent era and structural adjustment programs have fundamentally challenged the legitimacy of Euro American engagement with the continent. China doesn’t have this baggage. In effect, China came to Africa with a clean slate with no history of exploitation, savagery or utilitarian tendencies with Africa. This, in itself, gave China an easy way into Africa.
Secondly, China is not prescriptive in its interaction with Africa and African governments. Often Europe and North America leave the impression that Africans must listen to them if the continent is to ever to ‘develop’. Europe and North American ‘experts’ on Africa both on the continent and abroad have very clear opinions on what Africa ‘needs to do’ to get out of poverty. China does not have this attitude. Despite the fact China has pulled millions out of poverty and become the second largest economy in the world, the Chinese are remarkably humble. In my interactions with both government and private sector from China, there is a humility in the approach they have with Africa. They understand that a unique combination of factors allowed China to become economically dominant fairly quickly, and thus will not push ‘Model China’ on Africa. This is because they seem to appreciate that there are complexities in Africa that may render many elements of China’s path, ineffective in Africa. China could have easily marched into Africa barking orders about what African governments need to do to catch up, but they have not. African governments appreciate this humility and almost feel honoured by it.
Finally, China doesn’t lecture Africa. African governments have grown weary of lectures about governance, corruption, human rights, autocracy etc. from Europe and North America. There still seems to be a sense in the Global North that they have the right to meddle in what African governments view as the business of African governments. In the same way African governments do not meddle in how Europe and North America run themselves, they wonder why EuroAmerica continues to feel the need to lecture them on how to run their countries. This is not to say that the points raised by the Global North aren’t relevant, it is simply that African governments are tired of what can come across as patronising downtalk. Again, China does not behave in this manner. China accords African governments the dignity to run their countries without interference from China.
These three factors constitute the triple threat that made the rise of China in Africa so auspicious and expedient. It will be interesting to see how the interaction between China and Africa evolves as the ties between the two entities develop and invariably become more complex.
Anzetse Were is a development economist; firstname.lastname@example.org
I talked with Eric Olander of The China Africa Project on growing Chinese debt in Africa.
This article first appeared in my weekly column with the Business Daily on May 21, 2017
Last week China announced a plan to build a vast global infrastructure network linking Africa, Asia, Europe and the Middle East into ‘One Belt, One Road’. China plans to spend up to USD 3 trillion on infrastructure in an effort that seems to be centred more on linking 60 countries in the world with China, not necessarily each other. This One Belt initiative is perhaps part of China’s determination to position itself as the world’s leader in the context of Trump’s insular USA. This initiative has two-fold implications for Africa: the opportunities and potential problems that it creates.
In terms of opportunity, obviously African needs continued financial support in infrastructure development. The Africa Development Bank (AfDB) estimates that Africa’s infrastructure deficit amounts to USD 93 billion annually until 2021. In this sense any effort to support the development of Africa’s infrastructure is welcome.
Secondly, this is an opportunity for Africa to negotiate the specifics of the type of infrastructure the continent requires and create a win-win situation where Africa leverages Chinese financing to not only address priority infrastructure gaps, but also better interlink the continent.
However there are multiple challenges the first of which is that Europe, India and Japan seem edgy about this initiative and have distanced themselves from it. According to India’s Economic Times, India and Japan are together embarking upon multiple infrastructure projects across Africa and Asia in what could be viewed as pushback against China’s One Belt initiative. The countries have launched their own infrastructure development projects linking Asia-Pacific to Africa to balance China’s influence in the region.
Europe is also edgy because the initiative has not been collaborative and comes across as an edict from China; countries in the initiative were not consulted. Europe is also uneasy with the lack of details and transparency of the initiative seeing it as a new strategy to further enable China to sell Chinese products to the world.
Secondly, analysts have pointed out that from an Africa perspective, the One Belt seems to continue the colonial legacy of building infrastructure to get resources out of the continent, not interlink the continent. Will the initiative entrench Africa’s position as a mere raw material supplier to China and facilitate the natural resource exploitation of the continent?
Additionally, there are concerns with how the financing will be structured and deployed. Will financing be debt or grants? It can be argued that China needs to increase its free aid toward Africa in order to build its image as a global leader. Further, who will build the infrastructure? Africa has grown weary of China linking its financing to the contracting of Chinese companies. Will this infrastructure drive employ Africans and use African companies? If not, then it can argued that Africa will merely be borrowing money from China to pay itself back.
Linked to the point above, is the fact that Africa is already deeply indebted to China. In Kenya, China owns half of the country’s external debt. Kenya will pay about KES 60 billion to the China Ex-Im Bank alone over the next three years. Kenya and Africa do not need more debt from China, and if this initiative is primarily debt-financed (in a non-concessionary manner), it will cause considerable concern in African capitals.
Anzetse Were is a development economist; email@example.com
This article first appeared in my weekly column in the Business Daily on February 26, 2017
Last week I had a chance to attend and speak at the Africa Energy Indaba in South Africa. Several themes emerged during the conference that spoke to the need for and potential of the development of energy infrastructure on the continent, as well as the constraints that hold energy development back.
The first was the issue of energy inter-dependence versus energy sovereignty. Should nations seek to be self-sufficient with regards to energy production or should nations collaborate and pool energy resource to service populations across borders? The idea of energy sovereignty is an important part of national security particularly in countries such as Kenya with porous borders and the threat of terrorism looming. Energy sovereignty allows the country to secure all generators of energy for the country and control access in a manner that interdependence would not allow. If Kenya agrees to rely on neighbours for a significant portion of the electricity servicing the country, it has limited room for recourse should power stations be compromised in neighbouring jurisdictions. At the same time, there is a case for inter-dependence and the creation regional sources of energy where countries support each other as needed. For example, Kenya is current facing a crisis in the energy sector, specifically electricity, due to the drought that has led to insufficient power generation from hydro sources. Had Kenya been in a substantive agreement with neighbours, the country would be able to address the crisis in hydro power and draw energy from regional sources.
Another theme of the conference was approaching energy infrastructure development from a regional perspective. This regional approach to energy infrastructure development seems to already be happening in parts of the continent, particularly Southern Africa. However, formal regional cooperation can only be effected through deliberate planning at the regional level. Regional energy planning has to be methodical and cannot be merely an amalgam of national energy plans of member countries; Africa has found this to be difficult. Another factor constraining regional energy development is the reality that although regional energy plans can be cheaper and more sensible in the long term, getting political buy-in is difficult. Regional energy projects can take years to deliver concrete benefits to member populations; however the politicians leading the creation of such initiatives exist in the bubble of 5-year political cycles. So how can one expect politicians to commit to plans the fruits of which will likely emerge after their tenure? Thus the question then becomes: How can Africa create stable regional bodies that lead and ensure continuity in regional energy development regardless of the politicians in power?
The final theme of the conference was a familiar one: the battle between renewable energy (wind, solar, geothermal and hydro), and non-renewable energy (diesel, coal and nuclear). Both have advantages and disadvantages. The disadvantages of non-renewable sources are that they are pollutants both in extraction and consumption, are finite and some are very expensive. However, they deliver a solid and stable baseload on which other energy sources can build, and technology is making them cleaner and safer. It is not a secret that renewable energy sources have gained popularity in recent times as climate change and global warming have become issues of growing concern. Renewable energy has the advantage of being clean, infinite, easily deployed off-grid in remote areas, and some are becoming affordable. However, the challenge with renewable energy is that it tends to be intermittent and cannot truly provide a baseload. The main renewable that can generate baseload is hydro, but even that is not reliable as Kenya is witnessing during the ongoing drought. Thus what is Africa’s ideal energy mix?
The concluding position was that each country has to assess its domestic energy sources and create energy development strategies based on their own assets and eventually link these to regional energy assets and development plans.
Anzetse Were is a development economist; firstname.lastname@example.org
This article first appeared in my weekly column with the Business Daily on February 5, 2017
The President of the United States, Donald Trump, made it clear during the campaign trail and his inauguration speech that from now on it is ‘America First’. He wants to build America, hire American, sell American and buy American. Many are bracing for protectionism from the Trump and even a trade war. In Africa, we’re looking at the developments in the USA with a mixture of amusement and concern. How will Trump’s administration affect AGOA? Will a Trump economy negatively affect remittances from the African Diaspora? To what extent will FDI from the USA into Africa be affected as investors scramble to adjust to policy action from Tump? Will Trump’s insularity be reflected in US support to Africa’s economy?
China is cognisant of the global havoc being wrought by Trump and the lacuna in global leadership Trump is creating through the singularity of his ‘America First’ rhetoric. China is aware of the fact there will be economic implications that will affect it during the Trump era. China may lose out on investment that had targeted the country in the context of global value chains. The Harvard Business School makes the point that major global manufacturers worry that Trump’s new policies (such as the introduction of 20 percent border tax) could disrupt their global manufacturing plans, which have been carefully constructed to optimize the efficiency of their supply chains based on free trade policies. If the tax is effected, calculations may dim China’s prospects of continuing as the world’s factory. On the other hand, China may benefit from Trump’s insularity and take advantage of the weakened presence of the USA in the global economic arena. Perhaps this informed the speech made by the China’s leader Xi Jiping during the World Economic Forum where he stressed that pursuing protectionism is just like locking one’s self in a dark room; he supported continued globalisation.
So what does this all mean for Africa? Firstly, Africa should prepare for a China that seeks to take on the reins of being the world leader both economically and politically. Africa should expect China to more aggressively engage in consolidating its economic strength and influencing global trade rules and dynamics to its advantage. There is a sense that Trump does not really understand the continent and is still trying to figure out the best course of action for the USA in Africa.
That said, Trump’s does have a Sino-phobic trade advisor, Peter Navarro, who is of the view that China dominates the continent and is locking out the USA. Time will tell whether such sentiments will translate to determined action from the Trump administration in Africa or not. What is clear is that China is likely to be willing to step up its activity in Africa as the USA figures out its strategy. And once a Trump strategy for Africa is developed, China will analyse the trade, investment and financial gaps in the plan and act to further consolidate its dominance on the continent. The truth is that Africa’s economy continues to grow (albeit more slowly) and Africans are slowly getting richer. China is aware of this and will tenaciously expand its presence in African markets. It will be very difficult for the Trump administration to reverse this momentum if its isolationist rhetoric is anything to go by.
Additionally, given Trump’s border tax threats, Africa should expect a more aggressive continuation of China’s entry into African manufacturing. The Washington Post makes that point that in terms of low-end manufacturing, what was ‘Made in China’ is now ‘Made in Africa’. Chinese factories are already moving to Africa and Trump may incentivise the relocation of labour intensive manufacturing from China to Africa where wages are cheaper. Thus, in trying to protect America, Trump’s policies may push China further into Africa.
Time will tell whether Trump is truly serious about China; and Africa will be at the centre of the action.
Anzetse Were is a development economist; email@example.com
This article first appeared in my weekly column with the Business Daily on October 9, 2016
There is a little known branch of economics called Economic Geography which Kenya could pay attention to in order to garner new insights on factors that inform social and economic development. Economic Geography is essentially the study of location, distribution and spatial organization of economic activities across a region, and the implications to development. The pertinence of the field of study lies in how the development of Kenya and Africa, or the lack thereof, can essentially be seen as a function of geography. Some within this field argue that the underdevelopment of the continent is a case of ‘bad latitude’ and that income disparities within and between regions can be explained by erratic climates, poor soil, low agricultural productivity and infectious disease which then mutually reinforce each other in a ‘vicious cycle of destitution’.
Jeffery Sachs makes the point that one of the reasons Africa has such a high burden of disease is because we do not have a winter; and winter essentially makes it impossible for most infectious agents such as parasites, viruses and bacteria, to survive. As a result, countries such as Kenya face chronic onslaughts of high levels of infectious agents because of our geographical location.
If Africa were located in European climes, some argue, it would be Africa and not Europe that would have economically dominated modern history. One study even goes as far as saying that if Zimbabwe were located in central Europe, the resulting improvement in its market access would increase its GDP per capita by almost 80 percent.
A country’s geographical location also pins down its position on the globe with regards to other countries and centres of power. This determines the importance of a country in international relations that in turn affects economic development. Some argue that one of factors that fed the Trans-Atlantic slave trade is the proximity of the eastern coast of the USA and the western coast of Africa. If these regions had been further away perhaps a different area would have suffered the horrors of slavery. In Kenya a similar argument holds; the choice of Nairobi as the nexus of power by the British may have informed why regions in and around Nairobi are more economically developed than those in the outer regions such as North Eastern. Perhaps had the climate in North Eastern been more to the liking of the British, Kenya’s socioeconomic landscape would be vastly different.
Another point made by economic geography is that the sheer size of the African continent negatively affects its economic development. Africa is massive; indeed one can comfortably house China, Japan, India, the USA, Eastern Europe, Italy, the UK, France, Portugal, Germany and Italy in Africa with room to spare. The implication of this on the cost of building infrastructure and ensuring access to all points of the continent is obvious. Indeed a study argues that halving distance between Zimbabwe and all its trading partners would boost its GDP per capita by 27 percent. In short there is the argument that if Africa were the size of Europe, it would be much easier and cheaper to build infrastructure and interlink the entire continent; a factor that would catalyse economic growth and engender closer socio-political ties.
Africa’s geography has also been the foundation of its economic strengths; vast reserves of minerals and metals have been the backbone of the African economy. Sadly, these reserves have deteriorated into Africa’s ‘resource curse’ where rents from minerals in African often tend to accrue to elites and fail to trickle down to the poor. Therefore, there is an interface between geography and human behaviour. Political instability, the chronic mismanagement of funds by some African governments coupled with Africa’s position in the international division of labour also explain the continent’s limited growth and development, not just its geography.
Nonetheless economic geography provides a perspective of analysis, of which Kenya could make great use.
Anzetse Were is a development economist. Email: firstname.lastname@example.org;