development

How poverty impedes development in Africa

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 This article first appeared in my weekly column with the Business Daily on October 29, 2017


The fact that Africa struggles to meet development goals is not a secret, but an understanding of the role poverty plays in this process is less common. Africa seems to be caught in a vicious cycle where a poor status of development across a cross section of criteria exacerbates poverty and poverty negatively affects the ability of Africans to meet development goals.

According to the organisation World Hunger, in 2012, 47 percent of the population of sub-Saharan Africa, lived on USD 1.90 a day or less; below the poverty line. 22 percent of the world’s human development is lost due to inequality; the figure is 32 percent in Sub-Saharan Africa. There are several means through which poverty curtails Africa’s ability to develop.

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(source: http://www.borgenmagazine.com/wp-content/uploads/2014/04/africa.jpg)

Firstly is the role of poverty in economic growth. Poor Africans do not have the savings required to invest in activities that would boost their income. Further, poor Africans are seen as high risk and thus are routinely denied access to credit streams that would enable them to improve their financial status. Thus being poor, makes it harder to get the financial support required to get out of poverty.

Secondly there are effects of poverty on health and education. Higher levels of income reduce infant mortality, and better education in terms of primary and secondary school enrolment rates are positively associated with higher levels of income. But the reality is that poor people often cannot afford the healthcare they require, nor are they able to educate their children to basic levels of education. Thus the fact that almost every 1 in 2 Africans are in a state of poverty means that half of the continent has a fundamentally compromised ability to afford access to healthcare and education; a reality that then makes the prospects of rising out of poverty more difficult. Poor health compromises one’s ability to physical work and exerts a great toll on income growth. Poor education ensures that millions of Africans are vulnerable, stuck in low paying jobs, often in the informal economy that routinely undercompensate. Poverty itself makes it difficult for Africans to rise out of poverty.

Finally, poverty negatively affects human development itself. Research has found that exposure to poverty in early childhood impacts brain development. Damaging effects can range from poor cognitive outcomes and school performance, stunted development, limited future productivity as adults and intergenerational transmission of poverty, to a higher risk for antisocial behaviours and mental disorders. According to UNICEF, nearly half of all children in sub-Saharan Africa are living in extreme poverty; children are twice as likely as adults to be living below the poverty line. And because more children live in poverty, they are much less likely than an adult to be able to cope with extreme poverty because of stunting, infant mortality, and compromised early childhood development.

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(source: http://www.essaywow.com/wp-content/uploads/2014/12/lndikumana0723.jpg)

The good news is that this can all change. For example some of the negative effects of poverty on children’s brains can be mediated by support of the children’s caregivers. It is time Africa developed a strategy on how the negative effects of poverty on development can be systematically eliminated.

Anzetse Were is a development economist; anzetsew@gmail.com

 

 

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Development yet to get right fuel in yearly allocations

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This article first appeared in my column with the Business Daily on June 21, 2015

The 2015/16 Budget of more than Sh2 trillion indicates the government will raise expenditure by 17 per cent. But is the budget pro-development? A useful way of determining whether development is the focus of a Budget is looking at allocations to health, education, water and youth.Health and education are important as they invest in the country’s human capital that often drives economic growth and development. Water is important as a basic human right.

Given that more than a third of the population is youth (aged 18-35), it is important the segment get budget support to build up skills, employability and employment opportunities for Kenya to reap the youth dividend of innovation, energy and affordable labour.

(source: https://mahaslaztv.files.wordpress.com/2013/08/empowering-youth-in-kenya.jpg)

In addition to this, one should take note of the ratio between allocations and expenditure related to recurrent versus development costs; a pro-development budget has higher outlay for development.

A quick analysis of the key sectors reveals education previously got 26 per cent of the total; in this Budget that figure is 22 per cent. The last budget allocated four per cent to health; it is unchanged. Water (and regional development) got four per cent in both budgets. In the last budget, youth (alongside gender and culture) received less than one per cent, the same as this year.

Juxtapose these percentages with security (15 per cent) and infrastructure and energy (27 per cent), both of which the government openly stated are top priorities.

Although one can argue peace and infrastructure are the foundations of development, but shouldn’t the focus be promoting and defending national economic development? Because without defeating poverty, Kenya will remain weak and vulnerable, no matter how many roads and fighter jets it has.

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(source: http://www.kenyanaviation.com/wp-content/uploads/2012/10/KAF_Harbin_Y-12_by_Antoisurf_sm.jpg)

The 2015/16 Budget seems to say development-related sectors are becoming less of a priority for government. However, there are some steps the Budget takes that are pro-development; for example, an additional pro-youth element of the budget is rebates to corporate bodies hiring new graduates and supporting them to build the relevant skills and experience.

To qualify, employers must provide internships/apprenticeships to a minimum of 10 youths for a period of six to 12 months. Although this is commendable it may be a misplaced strategy because it doesn’t get to the root of the problem: the failure to offer relevant curricula.

Perhaps, the government should consider deploying strategies to revamp training offered in the first place.

One also has to analyse allocations to recurrent versus development expenditure and audit that spending.

International Budget Partnership (IBP) indicates that in 2013/14, the government allocated 58 per cent of the Budget to recurrent but spent 78 per cent on the same. In 2014/15, recurrent was allocated 58 per cent but IBP projects government will eat into 63 per cent of the Budget.

This year, the recurrent versus development stands at 52 per cent to 48 per cent. In short, in all the past three budgets, recurrent allocations trump development and even worse, actual recurrent is higher than what was allocated. This is a concern.

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Also note that an analysis of Q4 2014 of the budget by the Institute of Economic Affairs (IEA) revealed a failure to spend 48 per cent of the development budget.

So, the government is overspending on recurrent expenditure such as salaries but underspending on development. The government would do well to push for more austerity in recurrent expenditure.

Ms Were is a development economist. anzetsew@gmail.com; @anzetse

Why a focus on wealth is killing Kenya’s development

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This article first appeared in my column with the Business Daily on May 24, 2015

Kenya has essentially been capitalistic since its inception as a nation-state in 1963. At no point did the country seriously dabble with socialism or communism like some of our east African neighbours. Many are of the view that this ultimately did Kenya good. After all the country is the economic forerunner in the region and a major player in the continent.

To be honest, this thinking is bolstered by the fact that almost every nation on earth has bought into the notion that capitalism is the best economic system humans have devised so far in our history.

capitalism-without-romance(source: https://www.aei.org/wp-content/uploads/2009/12/capitalism-without-romance.jpg)

Some regimes may be more autocratic than others but a core belief in capitalism persists.But has this mass buy-in into capitalism led to a focus on wealth rather than development?

Is economic power a necessary and sufficient precursor to or foundation for development? Further, as the World Bank asks: Is the goal of development merely to increase national wealth, or is it something more subtle?

In Kenya, accumulating wealth has become the life goal of many citizens. So ingrained is this notion that it no longer matters whether one has beaten, robbed or stolen one’s way into wealth. As long as one is wealthy, respect, power and access to opportunities often follow.

The obsession with wealth fuels corruption at both the macro- and micro-level because individuals want to save money or make money by dabbling in what is essentially immoral and/or illegal behaviour. The mantra seems to be “accumulate” rather than “develop”.

Interestingly, even if one is not willing to engage in corruption to accrue wealth, a focus on money alone can lead individuals to sacrifice development for the sake of financial gain.

Money-Obsession(source: http://www.dumblittleman.com/wp-content/uploads/2014/04/Money-Obsession.jpg)

Behavioural ethicality

Studies that explore the subconscious link between money and corruption called behavioural ethicality, illustrate this point. One study by Harvard University found that even subtle exposure to the concept of money, in and of itself, may be a corrupting influence that leads to a focus on financial accumulation rather than ethical good.

This may be explained by the possibility that money triggers a business decision mind-frame and a focus on a cost-benefit analysis where benefit is defined in purely financial terms.

However, in an underdeveloped country such as Kenya, sometimes long-term good may be more expensive in the short term, fail a financially focused cost-benefit analysis but have greater developmental benefit. For example, in order to build capacity to craft basic infrastructure for itself, Kenya may need to make the short-term costly investment of integrating inexperienced engineers into infrastructure projects. This may be expensive and inefficient in the short term because it takes time and money to ensure technical skills transfer truly happens, but it would ultimately be for the greater good of the country as we will have the home-grown capacity to manage and implement projects.

Girl's hands holding globe --- Image by © Royalty-Free/Corbis

(source: http://studentsforliberty.org/wp-content/uploads/2013/01/Africa-Post.jpg)

 A focus on financial efficiency alone often makes government cast aside the greater good achieved from strategies that are costly in the short term but push the country up the development path in the long term. The government tends to adhere to selecting the most financially “efficient” short term solution. The point is not to encourage poor investment decisions but rather highlight that a focus on money and accumulation alone is not serving the country well.

As it stands, the current fixation on money is doing two things: First, exacerbating the culture of corruption at both institutional and individual levels and, second, compromising the nation’s long-term development in order to ensure short-term financial gains.It is time the country grappled with how wealth can used to pursue the goal of development rather than being the end goal itself.

Ms Were is a development economist. Email: anzetsew@gmail.com, twitter@anzetse

Race and Development: Why Kenyans are Livid with the Chinese Restaurant

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This article first appeared in my column with the Business Daily on March 29, 2015

Last week, Kenyans were outraged when it came to light that a Chinese restaurant in Nairobi had a policy of denying black people entrance into the establishment after 5pm.

Of course fury and outcry ensued and the restaurant has since been closed for allegedly failing to comply with various rules. But frankly, why are Kenyans surprised?

Racism has always been a prevalent theme in relations between African and non-African nations. Tensions even exist among Kenyans of different races and although we can all claim to be one nation and one people, the reality is starkly different.NIGGER-KING-STORE

But this Chinese Restaurant fiasco is important as it brings to light the unspoken racism narrative embedded in economic and social development efforts in Africa by non-African actors.

Africans are routinely infantilised in development circles with the default position often being that Africans cannot quite seem to figure out how to ‘develop’ and need external (read non-African) help.

Although one would assume that the “Africa Rising” narrative would challenge notions of African inferiority by demonstrating that the continent houses intelligent and innovative individuals, a closer analysis of this narrative reveals its flaws.

Africa is only ‘rising’ because it’s catching up with the rest of the world. Although there can be nuanced, ‘Africanised’ manifestations of this rising such as M-Pesa, essentially it’s a catch up game.

The symbolic representation of authority, expertise and knowledge are still non-African in origin. Indeed, the distinction between ‘developed’ and ‘underdeveloped’ is often framed in terms of EuroAmerican yardsticks of levels of industrialisation, gross domestic product and democratisation. In the past EuroAmerica was the sole fount of wisdom but now with the economic rise of China, they too have become ‘experts’ from whom Africans can learn.

maxresdefaultNow there is no problem in learning from others. Indeed, it should be encouraged but if distinctions between those who possess expertise and those to whom it should be imparted are based only on where they come from and the colour of their skin, that’s a problem. Perhaps part of the outrage with the Chinese restaurant incident is that Kenyans expected citizens from a nation that has been subjected to racism itself to be repulsed by racism.

Indeed, perhaps a silent bond between Africa and China, especially at government levels, is that both parties ‘get’ how annoying racism can be when dealing with certain EuroAmerican delegates.

Despite what has been vociferous Sinophobic commentaries of China’s ‘neo-colonial’ and ‘imperialistic’ march into Africa by some quarters, a sense of solidarity between China and Africa persists. Perhaps Kenyans, like other Africans, felt that although China’s involvement in the continent has serious problems and drawbacks, at least racism is not the infuriating invisible elephant in the room.

Maybe Kenyans felt that China, and therefore the Chinese, are development partners that genuinely respect them. The Chinese restaurant fiasco busted this myth and feelings of solidarity. Kenyans felt deeply violated. Because this blatant act of racism occurred here, the audacity of the disrespect was incredible. But to the point made at the start, Kenyans may be outraged but they should not be surprised by what happened.

china_africa_1107 (1) Why? Because, despite the fact that we live in a multipolar world with multiple centres of power, Kenya (and indeed Africa) has largely failed to use this to our advantage.We don’t seem to be too intelligent. We still export raw materials and import manufactured goods — they just come from China now.

This incident may be the much needed wake-up call for Kenyans to realise that the perception persists that we need to work smarter and earn genuine respect. Maybe now we get it.

Ms Were is a development economist. Email: anzetsew@gmail.com. Twitter: @anzetse

 

What’s With All The International Sovereign Bonds Being Issued By African Governments? (Part 2): The Dangers Of Eurobonding

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In my previous post I looked at 1) Why international sovereign bonds have become so attractive to African governments and 2) Why these bonds are so well received in global markets.

Clearly, Eurobonding[1] is fashionable, but is it wise? It can’t all be roses and butterflies….

3. What Are the Risks and Challenges for African Governments in Issuing International Sovereign Bonds?

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 a. Danger Lurks In Current Conditions

African governments are issuing international bonds in an environment where there are, ‘record-low interest rates that prevail in the United States’ and more developed markets in general.[2] Yield hunting has brought investors to Africa’s door but, ‘when global interest rates increase and concerns about the global financial crisis abate, governments in sub-Saharan Africa will have to compete with other issuers for funding’.[3] African governments seem to be cognizant of this which may lead to over-issuing in order to seize the conditions of the moment. Further, there is an air of optimism around Africa and the world is beginning to look at the continent as a truly viable member of the global economy. It seems as though African government are courting this new found attention and perhaps entering into more agreements than advisable. Eurobonding certainly seems to be trendy on the continent with one commentator stating that, ‘Eurobonds have become like stock exchanges, private jets and presidential palaces. Every African leader wants to have one’.[4] I therefore echo Stiglitz’s concerns about Africa’s Eurobond spree when he asks, ‘are shortsighted financial markets, working with shortsighted governments, laying the groundwork for the world’s next debt crisis?’[5] If so, Africa will be impacted far more significantly this time around not least due to the manner in which Eurobonds are integrating African economies into the global financial system. The current conditions spiral into several other risks such as…

b. Over Leveraging Risk

The current environment may cause Africa to over borrow because it’s relatively easy to get the money. However, the IMF is of the opinion that, ‘the rates at which sub-Saharan African countries are borrowing on the international markets are not sustainable.’[6] The rates African governments are getting are,’ sometimes below what many euro area countries are paying’. This rate of borrowing is probably ‘unsustainable in the long run unless these countries are able to generate high and sustainable economic growth and further reduce macroeconomic volatility.­’[7] Africa risks becoming overleveraged.

c. Debt Sustainability

Linked to points a) and b) is debt sustainability or rather the lack thereof. Prior to the Eurobond issue (as of March 2014) Kenya’s GDP to debt ratio stood at 52.2%.[8] Kenya has gone ahead with the issue despite the fact that in the same month of March, the IMF and World Bank ‘raised the red flag over Kenya’s debt’ specifically suggesting that, ‘the debt ratio be kept at not more than 50 per cent of the GDP’.[9] The Eurobond issue exacerbates Kenya’s debt burden and heightens concerns over sustainability. This is a mantra being sung about Africa in general because after a spate of debt forgiveness, ‘many countries’ debt levels are creeping up again, which could undermine the region’s growth boom’.[10] For example, if Ghana, Uganda, Mozambique, Senegal, Niger, Malawi and Benin, ‘continue to borrow at current rates their debt indicators could be back to pre-(debt) relief levels within a decade’[11]. Eurobonding is risky behaviour with grim prognoses.

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d. Defaulting

The scale of funds that African governments are accessing via Eurobonds, which have more stringent conditions that concessional loans, are actually predicated on robust growth of the borrowing economies in order to raise the capital required to meet maturity deadlines. No one can guarantee robust growth and thus defaulting is a real risk. In fact, African countries have already defaulted on Eurobonds, ‘The Seychelles defaulted on a $230 million Eurobond in October 2008…Following election disputes, Côte d’Ivoire missed a $29 million interest payment, which led to a default in 2011 on a bond that was issued in 2010’ and ‘Ghana and Gabon are struggling to find money for a $750 million and $1 billion bond, respectively, on 10-year Eurobonds that will reach maturity in 2017’. [12], [13] In some cases the default has led to government spending cuts, which is problematic (more on this in h.). ­

 e. Poorly Project Selection

Infrastructure projects have usually been a key element of the activities to be funded by Eurobonds due to their multiplier effects on the economy and the fact that African infrastructure needs are dire. However, there is no guarantee that the specific projects selected are the best candidates for such finances. Indeed, the IMF argues that due to factors such as limited administrative capacity, low efficiency of public investment expenditure and governance issues, ‘there is a risk that increased public spending or investment projects financed by bond issuance may be poorly selected or executed and therefore would not render value for money’.[14] Anyone familiar with the African political scene knows that sometimes flagship projects are selected based on their political currency rather than economic or developmental return. Some projects are selected due to the prestige enhancement and legacy effect they will confer African leaders rather than the prudence and pragmatism of the suggested projects. Are African governments choosing the Eurobond-financed projects wisely?

f. Poor Implementation

Poor implementation of the projects for which the funds have been planned is a serious risk because, ‘there are carry costs for not using proceeds and these are greatest when there are delays in projects’.[15] This thought makes one shudder given the ongoing debacle in the Kenyan government’s management of the standard gauge railway project which, if well managed, could have been a clear indication and proof of competent management of funds for infrastructure development. It seems to be proving the opposite. Sadly this project does not stand alone; in fact in response to the Kenya 2014/15 budget in which the Eurobond was incorporated, PWC stated the projects planned by government have inherent risks that, ‘relate to time and cost overruns, which will require a significant upgrade in technical, legal and institutional frameworks to manage and control the delivery of the investments’. [16] If governments do not address such concerns, projects will be implemented poorly which may cause the bonds to mature before the projects are completed, in which case governments may have to rollover the debt.

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g. Rollover Risk

Given the implementation risk and the possibility that planned projects may develop significant delays, roll over risk is very real. Roll over risk is, ‘A risk associated with the refinancing of debt commonly faced by countries (and companies) when their debt is about to mature and needs to be rolled over into new debt. If interest rates rise adversely, they would have to refinance their debt at a higher rate and incur more interest charges in the future’.[17] Bear in mind that in case of Kenya’s Eurobond, the 5 year tranche matures in 2019 and the 10 year one in 2024.[18] These are tight deadlines given the delays current infrastructure projects are experiencing. Please remember that Kenya’s railway gauge project was due to start in November 2013; yet no work has begun to date. That is an 8-month delay with no resolution in sight. Rollover risk is real.

h. Rollovers Are Not Guaranteed due to Perception Risk

Rollovers happen if investors are of the opinion that the borrower is capable of meeting the new terms and deadlines. Africa doesn’t have this luxury. Although currently there is immense optimism about the continent, the reality is that Africa is still a poorly understood market. Further, Africa is still considered a high risk venture and is therefore vulnerable to negative hype that can push the continent back to being the world’s investment pariah. Africa’s perception risk is of particular concern given that, ‘negative or inaccurate international market perceptions about a sovereign issuer’s economy may develop due to a lack of comprehensive and timely information on the pursuit of appropriate policies, fears of instability stemming from political developments and unfavorable interpretations of economic or political pronouncements.’[19] There is already evidence that when African economies suffer from internal political instability or terrorist attacks these are prominently covered and sensationalized in local and global media and create negative global perceptions of Africa. This then undermines Africa’s, ‘ability to secure access to international capital markets on a sustained basis, thus significantly increasing refinancing risk.’ Also, if Africa’s economies begin to weaken significantly as more developed markets recover, international markets may not be inclined to refinance thereby forcing Africa to service the debt by cutting government spending in areas such as health, education and agriculture. With a debt the scale of the Eurobond, how much spending will have to be cut? Shudder.

i. Currency Depreciation Risk

Obvious point; debt secured in foreign denominations may have to be paid when the sovereign’s currency is weaker. This is of particular concern with bullet maturities.

j. Currency Appreciation Risk

Interestingly, the opposite scenario is also a risk because like, ‘other forms of capital flows, international bond financing has potential repercussions for exchange rate policy’ because a shift to larger foreign financing, ‘potentially implies appreciation pressure for the domestic currency (depending on the import content of the associated spending)’.[20] This may harm export competitiveness which is of particular concern for African countries which need healthy exports in order to service all the debt issued in foreign currencies.

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k. Revenue Risk

This is a risk that has apparently been acknowledged by the Kenyan government. According to the Business Daily, in one of the Eurobond pitch documents, ‘the Treasury stated, as a key risk, that the informal economy is not recorded and is only partially taxed, resulting in a lack of revenue for the government, ineffective regulation, unreliability of statistical information and inability to monitor or otherwise regulate a large portion of the economy’.[21] So government has handicapped revenue generation capacity linked to widespread economic informalisation (a long term problem), yet the international sovereign bond will mature well before the revenue issue is resolved. This is a simple illustration of how even acknowledged weaknesses in the economic infrastructure of African governments still carry very real risks.

l. Reduced Access To Concessional Funding

The willingness of African government to accept debt at higher rates than in other financing packages may reduce access to low interest vehicles such as concessional deals particularly if the Eurobonds, ‘generate new macrofinancial and debt vulnerabilities’.[22]

m. Corruption And Questionable Public Financial Management

Please bear in mind that all the risks raised hereto exist even if the funds raised are used responsibly. Yes there may be delays in projects and low levels of competence but the assumption is that no one is trying to steal the money and engage in corruption. Yet the monstrosity called corruption is a trademark of African governments and, ‘competent public debt management is not yet in place in many SSA countries’.[23] Transparency International’s Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be on a scale from 0 (highly corrupt) to 100 (very clean). 90% of African countries scored below 50 and of the bottom 20, 9 were African.[24] This is self-sabotage by African governments at its best and both African citizens and the international community are yet to find truly effective strategies to reign in corruption. Corruption is one of the most onerous risks on the list because if the money is siphoned to personal accounts, there is zero hope that the projected activities will occur and generate the requisite economic growth.

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So there are real and present dangers to Africa’s love affair with Eurobonds. The natural question then becomes how African governments can manage all these risks and opinions will vary on how to mitigate each of these risks. Additionally, some may argue that many of the risks are unavoidable and part and parcel of getting into Eurobond deals. However, I posit that the risk that is most needless is corruption. Interestingly, although corruption is the risk that could most seriously sabotage the positive power of Eurobonds, it is also the risk most readily addressed via Eurobonding itself! How? Well…

4. Can International Sovereign Bonds Change The Way African Governments Manage Public Funds And Stem/End Corruption?

The answer is yes and no.

The YES side exists with the following contributors:

a. Eurobond Issues Are Predicated On Disclosure and Transparency

‘The prospectus or offering memorandum of a bond issue requires disclosure of a substantial amount of data, allowing investors a close look at the current economic situation of the issuing country and a better assessment of the country’s prospects for successfully meeting its debt service payments’.[25] Although there may be an asymmetry in information, it is in the interest of African countries to fully cooperate in the disclosure and put all the cards on the table and acknowledge weaknesses and risks, including corruption. This disclosure ought to come with commitments on risk mitigation with clear strategies on how to address them. It is therefore possible that Eurobond issues have forced African governments to look at how they manage funds and put clear structures in place that assures investors that corruption will not compromise management of the bond and related activities.

b. Scrutiny

‘Accessing international markets through a sovereign bond can strengthen macroeconomic discipline and move forward transparency and structural reforms as a result of increased scrutiny by international market participants. For instance, Nigeria’s fiscal and monetary discipline to date has continued to strengthen following its increased presence in international markets in recent years.’[26] Indeed, ‘any country that borrows in the Eurobond market, by definition, exposes itself to rigorous analysis and questioning’. The world is watching African sovereign issuers; they better be corruption free.[27]

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c. International Reputation

The manner in which African governments manage debut issues informs access to future issues. If bonds are beleaguered with corruption, African governments will soon find themselves as investment exiles unable to access international financial markets. Easy global financial conditions will end and African governments will soon find themselves competing for money on global markets with everyone else. Therefore, developing a reputation of transparency, competence and efficiency is in the interest of African governments if future issues are to be successful.

d. Debt Will Not Be Forgiven

African governments know that if ‘money disappears’ they will still have to pay the debt. Governments forgive debt, private investors do not. As one commentator stated with reference to African Eurobonds, ‘Investors are cold blooded, rational people. They want to be assured they will be paid back.’[28] This fact becomes particularly potent if the issuing government also has to service the debt; which is possible in the case of 5 year maturities. If the government responsible for the issue fails to pay up, due to issues such as corruption, they will meet hostile sentiment from both investors and citizens. A government in power over the period of both issue and servicing will face hard questions and perhaps legal action if they can’t pay because funds were mismanaged. A new government can always say the previous government stole the money. This does not hold if the same government is in power throughout as any corruption would have happened under their docket. Therefore, it is in the interest of African governments to tame corruption as a failure to do so will lead to a world of trouble with which no government would like to contend.

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However, the NO side exists with the following to consider:

a. Change In Government= Change In Accountability

If the government that issued the bond is not the one responsible for paying up, this creates serious problems. A change in government can easily lead to a blame game with the incoming cadre accusing the former government of mismanagement of funds, and the predecessor denying the same. Bloody nightmare.

b. No guaranteed trickle effect

All the factors mentioned in the ‘YES’ section provide impetus to end corruption…in managing the Eurobond alone. There is no guarantee that discipline in this area will trickle into the management of public funds in general.

 So there you have it, the pros and cons of Eurobonding.

I think there are more reasons to smile than frown because, as stated in the previous post, there are solid reasons for African governments to pursue Eurobonds and now we see that these bonds open doors for: 1) African issuers to better manage public funds, and 2) For African citizens and the international community to use the Eurobonds as vehicles to better monitor public financial management and push for better management of public funds.

Therefore, I offer that yes, Eurobonding may be dangerous…but even roses have thorns. All that African citizens and interested parties can do is to make the effort to increase the likelihood that this shopping spree will be used to the continent’s advantage.

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Sources

[1]A term I coined.

[2] Amadou N.R. Sy (2013), ‘ First Borrow’. IMF, http://www.imf.org/external/pubs/ft/fandd/2013/06/sy.htm

[3] Amadou N.R. Sy (2013), ‘ First Borrow’. IMF, http://www.imf.org/external/pubs/ft/fandd/2013/06/sy.htm

[4] Tosin Sulaiman (2014), ‘Analysis: Decade after debt relief, Africa’s rush to borrow stirs concern’, Reuters, http://www.reuters.com/article/2014/03/18/us-africa-debt-sustainability-analysis-idUSBREA2H08B20140318

[5] Joseph Stiglitz (2013), ‘Sub-Saharan Africa’s Eurobond borrowing spree gathers pace’, The Guardian, http://www.theguardian.com/business/economics-blog/2013/jun/26/subsaharan-africa-eurobond-borrowing-debt

[6] Rintoul, Fiona (2013), ‘Sub-Saharan market: High yields fire appetite for African eurobonds’, http://www.ft.com/cms/s/0/d7c5c5d8-3810-11e3-8668-00144feab7de.html#axzz354cr4weH

[7] Amadou N.R. Sy (2013), ‘ First Borrow’. IMF, http://www.imf.org/external/pubs/ft/fandd/2013/06/sy.htm

[8] Mohamed Wehliye (2014), ‘The National Debt. Are we about to go bust?’, http://www.capitalfm.co.ke/eblog/2014/06/09/the-national-debt-are-we-about-to-go-bust/?wpmp_switcher=mobile&wpmp_tp=1

[9] Geoffrey Irungu (2014), ‘IMF, World Bank raise the red flag over Kenya’s debt’, Business Daily, http://www.businessdailyafrica.com/IMF-and-World-Bank-raise-the-red-flag-over-Kenya-debt/-/539546/2252232/-/68mp65/-/index.html

[10] Tosin Sulaiman (2014), ‘Analysis: Decade after debt relief, Africa’s rush to borrow stirs concern’, Reuters, http://www.reuters.com/article/2014/03/18/us-africa-debt-sustainability-analysis-idUSBREA2H08B20140318

[11] Tosin Sulaiman (2014), ‘Analysis: Decade after debt relief, Africa’s rush to borrow stirs concern’, Reuters, http://www.reuters.com/article/2014/03/18/us-africa-debt-sustainability-analysis-idUSBREA2H08B20140318, parenthesis mine.

[12] Amadou N.R. Sy (2013), ‘ First Borrow’. IMF, http://www.imf.org/external/pubs/ft/fandd/2013/06/sy.htm

[13] Jocelyne Sambira (2014), ‘Hunting for Eurobonds’, http://www.un.org/africarenewal/magazine/april-2014/hunting-eurobonds#sthash.tzl64sec.dpuf

[14] Mauro Mecagni, Jorge Ivan Canales Kriljenko et al (2014), Issuing International Sovereign Bonds: Opportunities and Challenges for Sub-Saharan Africa, IMF, http://www.imf.org/external/pubs/ft/dp/2014/afr1402.pdf

[15] Willem te Velde, Dirk (2014), ‘ Sovereign bonds in sub-Saharan Africa: Good for growth or ahead of time?’, ODI, http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8883.pdf

[16]All Africa (2014), ‘Kenya: Understanding Kenya’s 2014-2015 National Budget – PWC’, http://allafrica.com/stories/201406131050.html

[17] Investopedia (2014), http://www.investopedia.com/terms/r/rollover-risk.asp

[18]Author interview with expert, June 2014

[19] Udaibir S. Das, Michael G. Papaioannou and Magdalena Polan (2008), ‘Strategic Considerations for First-Time

Sovereign Bond Issuers’, IMF, http://www.imf.org/external/pubs/ft/wp/2008/wp08261.pdf

[20] Mauro Mecagni, Jorge Ivan Canales Kriljenko et al (2014), Issuing International Sovereign Bonds: Opportunities and Challenges for Sub-Saharan Africa, IMF, http://www.imf.org/external/pubs/ft/dp/2014/afr1402.pdf

[21] Bodo, George (2014), ‘Eurobond faces structural risks despite flying start’, Business Daily, http://www.businessdailyafrica.com/Opinion-and-Analysis/Eurobond-faces-structural-risks-despite-flying-start-/-/539548/2354496/-/ypyeyb/-/index.html

[22] Mauro Mecagni, Jorge Ivan Canales Kriljenko et al (2014), Issuing International Sovereign Bonds: Opportunities and Challenges for Sub-Saharan Africa, IMF, http://www.imf.org/external/pubs/ft/dp/2014/afr1402.pdf

[23] Deutsche Bank (2013), ‘ Capital markets in Sub-Saharan Africa, http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000321468/Capital+markets+in+Sub-Saharan+Africa.pdf

[24] Transparency International (2013), ‘Corruption Perceptions Index 2013’ http://cpi.transparency.org/cpi2013/results/#myAnchor1

[25] Udaibir S. Das, Michael G. Papaioannou and Magdalena Polan (2008), ‘Strategic Considerations for First-Time

Sovereign Bond Issuers’, IMF, http://www.imf.org/external/pubs/ft/wp/2008/wp08261.pdf

[26] Mauro Mecagni, Jorge Ivan Canales Kriljenko et al (2014), Issuing International Sovereign Bonds: Opportunities and Challenges for Sub-Saharan Africa, IMF, http://www.imf.org/external/pubs/ft/dp/2014/afr1402.pdf

[27]Author interview with expert, June 2014

[28]Author interview with expert, June 2014

CHINA AND AFRICA: WHAT’S THE DEAL? PART 3…THE WAY FORWARD

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So what should Africa do to take control of and manage this growing relationship in a manner that is favourable to Africa? At the core of these recommendation is the thought that, ‘Africa must not be too Westwards or Eastwards minded- but rather Inwards minded. It is within Africa that all the answers lie’.[1]  There are some specific steps Africa can take to ensure the engagement with China works to Africa’s advantage:[2],[3]

  • Identify needs before engaging with China

It is crucial that African governments better identify their individual and collective needs before engaging with China to ensure that projects are mutually beneficial.

  • Be proactive on development strategies

Africa needs to engage China with development strategies that have been proactively developed and thought through in order to ensure that the engagement with China is beneficial. There is a need to integrate a China strategy into national and regional economic and developmental bodies. The Sino-AU strategic dialogue provides an opportunity to mobilise Chinese support for specific development projects and initiatives.\

development

  • Develop appropriate policy and legal frameworks

Given the spread of sectors that China is engaging in, it is crucial that Africa develop the relevant policies and legal frameworks to ensure that all investments and activities are properly supervised and function in a structure that is of benefit to Africa. This is particularly the case for activities in the agriculture, industry and trade, natural resources and mineral extraction sectors.

  • Ensure technology transfer

Given China’s rapid economic development in the recent past, Africa is well placed to make use of the technology that catalysed this and engage in joint technology projects. This ought to be actively pursued since technologies developed, used or adapted by China may be a better fit for Africa given that they are being used and developed in an emerging country context.

solar panel with man_2

  • Integrate Chinese Development Aid into existing structures

It is important that Africa synthesizes Chinese official assistance programs into the activities of other donors in order to, ‘eliminate duplication and help to advance more productive and comprehensive development programs in Africa.’[4] China also needs to be integrated into the, ‘mechanisms of global aid accountability and corresponding processes in the recipient countries’.[5]

  • Analyse China’s engagement with Africa

There should be engagement between African researchers and policymakers specifically on China’s growing role on the continent. National research bodies should pioneer content development which is then shared through institutions such as the AU and Africa Development Bank.

  • Develop review mechanisms

The Forum of China- African Cooperation commitments ‘have not benefited from a focal point to oversee their implementation and monitoring’.[6] African countries can explore the introduction of a formal review mechanism that could be overseen by African bodies.

  • Engage with the private sector and civil society

Africa is well placed to use the private and civil society sectors to monitor Chinese engagements to, ‘inform policymaking and to ensure that the economic impacts of investments and trade are more broadly distributed.’ Civil society can be particularly engaged in this, especially in partnership with Euro-American donor organisations.

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Ultimately I leave you with this quote: Africa ought to know that it really doesn’t matter who your partners are or what plans they have for you in economic development; rather it matters what plans and strategies you have for them.[7]


[1] Obadias Ndaba (2012), ‘Why China Will Not Solve Africa’s Problems’, The African Executive, http://www.africanexecutive.com/modules/magazine/articles.php?article=6753

[2] The Rockefeller Foundation (2009), ‘China’s Engagement with African Countries: Key findings and recommendations’, http://www.rockefellerfoundation.org/uploads/files/9049b3b0-c0be-4485-8525-563a330d8160.pdf

[3] Asche, Helmut and Margot Schüller (2008), ‘China’s Engagement in Africa: Opportunities and Risks for Development’,  GTZ,

http://www.giga-hamburg.de/dl/download.php?d=/english/content/ias/pdf/studie_chinas_engagement_in_afrika_en.pdf

[4] The Rockefeller Foundation (2009), ‘China’s Engagement with African Countries: Key findings and recommendations’, http://www.rockefellerfoundation.org/uploads/files/9049b3b0-c0be-4485-8525-563a330d8160.pdf

[5]Asche, Helmut and Margot Schüller (2008), ‘China’s Engagement in Africa: Opportunities and Risks for Development’,  GTZ,

http://www.giga-hamburg.de/dl/download.php?d=/english/content/ias/pdf/studie_chinas_engagement_in_afrika_en.pdf

[6] The Rockefeller Foundation (2009), ‘China’s Engagement with African Countries: Key findings and recommendations’, http://www.rockefellerfoundation.org/uploads/files/9049b3b0-c0be-4485-8525-563a330d8160.pdf

[7] Obadias Ndaba