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; firstname.lastname@example.org
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; email@example.com
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; firstname.lastname@example.org
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: email@example.com;
This article first appeared in my weekly column with Business Daily on June 26, 2016
Earlier this month the President of South Korea visited Kenya and numerous intentions of bilateral cooperation were articulated including a deal to establish a science and technology centre and other agreements centred on trade, investment promotion, education, sport and culture. It was a shame that industry and manufacturing did not feature very prominently during the visit as Kenya and other African countries can clearly learn from South Korea and other Asian countries on this sector.
Sadly if you look at Kenya’s trading patterns with Asian countries, it’s the continuation of an old story; Kenya exports mainly raw agricultural commodities and imports finished and manufactured goods. Our biggest trading partners are from Asia, specifically India, China and Japan. It seems as though although Africa is waking up to the need to industrialise, practical partnerships both between governments and between businesses do not exist to catalyse industrialisation on the continent. In short, Africa should shift from calling in Asia to build roads, rails bridges and instead start to focus on partnerships to boost industry and manufacturing.
With China alone due to shed about 85 million jobs at the bottom end of the manufacturing sector between now and 2030, Africa has to shift from the development assistance and infrastructure focused partnerships with Asia and shift to building low end manufacturing on the continent. Yes it is true that the infrastructure base in the continent is poor, but so is the manufacturing and industry base. While infrastructure development is front and centre for Africa right now, manufacturing has not received such prominence. There ought to be a dual focus on infrastructure and industry while working on other aspects of Africa’s landscape particularly with regards to education, land reform and technology absorption and development.
Bear in mind that getting guidance and mentorship from industrialised countries is how much of Asia rose to become the manufacturing giant it is in the world today. For example industrialisation in Japan was a result of many factors but a key factor was the support it got from the USA. Japan’s industrialisation took off in during the Cold War. With the massive communist dragon called China so nearby, the USA made a deliberate effort to build ties with Japan to buffer China’s influence as well ensure capitalism took root in Japan next to a bastion of communism. As a result, some analysts argue that the USA even hollowed out some of its own manufacturing capacity and made deliberate efforts to build Japan’s industrial and manufacturing base and also opened its markets to manufactured Japanese products. Indeed by 1953, US military procurement from Japan peaked at a level equivalent to 7% of Japan’s GNP.
Although the global context in which Africa seeks to industrialise is very different the core point remains the same; Africa must learn from others and seek to reach out to countries that have successfully industrialised to build this sector on the continent in a very practical manner. African governments ought to more deliberately bring the issue of industry and manufacturing on the table during any negotiations with Asian countries. We all know that as wages rise in China, Chinese exports will become more expensive and this provides opportunities for manufacturing in Africa. Africa should position itself to do the manufacturing Asia no longer wants to do as their economies sophisticate.
The path Africa can take can include starting with building low end manufacturing that is not too complex and can absorb what is still largely an under-educated labour force by starting with textiles and other light manufacturing. This can then be displaced by the growth of engineering and chemical industries. I am of the view that the textile assembly that goes on in the Export Processing Zone in Kenya does not count as manufacturing since most of the components of the apparel are imported and are not building Kenya’s textile factories and industry. Thus the point is simple; Africa should call in Asia to help build industry not just infrastructure.
Anzetse Were is a development economist; firstname.lastname@example.org
On Friday morning the world awoke to the news that the UK had decided to leave the EU.
The same day saw currencies, stocks and bonds plunge across Africa, and a slump in oil and other commodities. From an African point of view, the immediate aftermath of Brexit has exacerbated problematic trends in international markets which have already hit African growth prospects. African currencies slipped against other currencies like the USD and Yen but of course gained against the GBP. Further, in the aftermath of Brexit, some African Eurobonds plunged with yields rising for Nigerian, Ethiopian and Rwandan Eurobonds.
If one were to trace some of the short and medium term effects of Brexit on Africa, the departure of the UK from the EU complicates African access to EU markets. Countries and businesses that were using the UK as a point of entry for their goods into the EU will have to find new partners in mainland Europe. Further, any trade deals that African countries had with EU will have to be renegotiated with the UK as a standalone entity. Although it is unlikely that the UK will effect drastic departures in terms of trade deals with African countries, the process of re-negotiation will take a period of time during which African exports to the UK will be negatively affected due to the uncertainty in the limbo period.
Closer to home, Kenya’s horticultural sector, particularly cut flowers, will suffer. Flowers are one of Kenya’s top exports and the UK is a major export destination. Thus again any trade deals that Kenya had negotiated with the EU will stall with regard to the UK because of Brexit; and this may well translate into losses in the short to medium term for those firms. Another example of how Brexit will negatively inform access to EU markets for African goods is the case of Kenyan tea. If Brexit leads to the tightening of access to the EU markets for UK goods, Kenyan blended tea exports will suffer because the UK has been a major re-exporter of Kenyan tea into EU markets. UK appetite for Kenyan tea was informed by this re-export function thus with Brexit, the UK may possibly lose easy access to EU markets which may lead to a cut in the volumes of tea the country imports from Kenya.
If one looks at the effect of the weakening of the GBP, Africa will be affected. Firstly, African exports to the UK will be more expensive for UK consumers and this may dampen their appetite for African products. Further, with a weaker GBP, Kenya will become a more expensive tourist destination which will negatively affect a sector that has already been under-performing as the UK is an important source of tourists for Kenya. On the other hand, a weaker GBP will be good news for an import economy such as Kenya as imports from the UK will be cheaper.
More broadly, if Brexit triggers a UK recession, there will be a more medium to long term problems with which Africa will have to contend in a context where African growth is at its slowest for decades. Not only will there be dampened appetite for African exports thus muting trade, FDI from the UK will also be negatively hit, the latter of which is particularly bad news for Nigeria for which the UK was the largest source of FDI in 2015. Further, remittances from Africans in the UK are likely to drop if the UK economy slides into a deeper recession. In terms of development assistance, it is unlikely that a new, post-Brexit government would drastically alter UK’s commitment to spend 0.7 percent of its gross national income (GNI) on development aid, but a struggling UK economy would translate to a decline, in absolute terms, in the amount of aid Africa will receive.
Another key negative effect of the UK leaving the EU is that the country has been a proponent of African interests on certain issues in the EU. For example, the UK has been a voice in the EU calling for a reduction of EU subsidies to farmers, subsidies that negatively affect African farmers by keeping the price of EU agricultural produce artificially low. With the UK leaving the EU, the interest of African farmers will no longer have a voice in the bloc. Secondly, a decision was recently made to cut EU funding to the African Union mission in Somalia (AMISOM) by 20 percent; the UK opposed this. The departure of the UK from the EU means that African countries will have to look at the EU anew and identify which countries can be pulled in as allies on key issues.
However, Brexit can be seen as good news in this context because the UK will no longer have to live with EU decisions and regulations concerning Africa with which they don’t agree. Indeed, the UK Minister to Africa said Brexit will allow the U.K. to “focus more on our bilateral relationships with Africa” allowing the country much more flexibility when interacting with Africa than was possible while working under the EU.
It will be interesting to see what the post-Brexit UK government African strategy and policy will look like. In terms of Kenyan interests, given the deep and longstanding ties the country has with the UK, aid, trade and investment are likely to continue. In fact, an analyst made the point that in all of Africa, perhaps Kenya may benefit the most from Brexit as the UK may be particularly eager to establish bilateral ties with Kenya after leaving the EU, giving Kenya exceptional leverage.
Anzetse Were is a development economist; email@example.com