East Africa

Growing autocracy in the East Africa Region: Implications for China

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This article first appeared in ChinaFile on November 28, 2017

Though not in the headlines, China is operating in an East African region that is becoming increasingly autocratic and authoritarian. The East Africa region in this article refers to the countries of Kenya, Uganda, Tanzania, Rwanda, Burundi and Ethiopia. It can be argued that in the region, Kenya is the only viable democracy left.

President Kagame of Rwanda has made headlines in the region for what appears to be the open targeting of Diane Rwigara who tried to run against him in elections earlier this year. Ethiopia has been ruled by the same party since 1991, with marked intolerance of opposition, evidenced in the imprisonment of political dissidents. Uganda has been under the hand of Museveni for well over 30 years and in Burundi the International Federation for Human Rights claims the crisis there has left at least 1,200 dead and 10,000 imprisoned for political reasons. In Tanzania, the chief whip of the opposition party was shot, opposition figures have disappeared, and in September, President Magafuli closed a third newspaper since June as part of a media crackdown.

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The trend towards autocracy and authoritarianism in the region cannot be ignored and will have several implications for China. The first is that while it could be argued that it is easier for China to work with governments that do not have to deal with the complications of a robust democracy, there is growing unrest in domicile populations in the region. And although authoritarian East African governments may assure China and the Chinese private sector, that unrest is being ‘managed’, the reality is that it can grow to unmanageable levels, compromising Chinese investments. The Chinese private sector is already feeling the pinch where both last year and this year, protesters in Ethiopia destroyed Chinese factories and assets in anti-government protests.

The second concern China should have is that it is the very authoritarianism in the region that may make countries more difficult to deal with because decisions can be made unilaterally with no consultation or explanation given. It is possible that such decisions could negatively affect Chinese interests in the region and given the strong arm of government in most of the region, trying to seek redress through legal means would likely be futile. Further, China has branded itself through its non-interference policy. Will this position change if the action of authoritarian governments threaten Chinese investments in the region?

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Finally, Zimbabwe provides an important lesson for China. China put all of its eggs in the basket of Mugabe’s autocratic rule. With Mugabe no longer in rule, there is surely concern as to how China will protect its investments and economic position in the country. And this is the fundamental problem with China continuing to interact with openly authoritarian governments; China can never be sure that the next ruler will treat them as well as his predecessor did. Will China be prioritised in Zimbabwe as other economically powerful countries and companies jostle to enter the country?

It will be interesting and see how both the Chinese government and private sector continue to operate in a region of growing autocracy and authoritarianism both of which pose considerable risks to China’s investments in the region.

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

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How the commodities decline is good for Africa

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This article first appeared in my weekly column with the Business Daily on May 22, 2016

The fact that the prices of commodities such as crude oil, iron ore, copper, aluminium and coffee have been in decline is not a secret. What seems to have been lost in the story however is how Africa is actually benefiting from this decline. The main story we’re hearing as Africans is that Africa is suffering from the commodities decline. The IMF makes the point that particularly hard hit are the region’s eight oil exporters (which together account for about half of the region’s GDP and include the largest producers, Nigeria and Angola) as falling export incomes emerge due to lower commodity prices. This results in sharp downward fiscal adjustments which limits government activity. The IMF goes on to say that among oil exporters, the sharp and seemingly durable decline in oil prices makes adjustment unavoidable, and while some had space to draw on buffers or borrow exist to smooth the adjustment, that space is becoming increasingly limited. This column agrees with much of this- but the positive elements of the commodity decline have not gotten nearly as much attention.

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To be clear, there are positive consequences to the commodity decline for Africa. So although Africa has to be aware of the difficulties this dynamic raises, the positive elements also ought to be highlighted.

The first positive result of declining commodity prices is that Africa finally seems to be truly serious about building manufacturing capacity on the continent. Once again Africa has found itself at the short end of the stick; because commodities were booming for so long, there was no pressure on Africa to domesticate value addition and build up manufacturing activity on the continent. Africa, once again, in the 21st century, found itself in the very old position of having just largely exported raw commodities during the commodities boom and is now suffering. It is almost as though Africans told themselves, ‘ let’s ride this wave while it lasts’, and the continent did not make any serious re-orientation in terms of domesticating value addition. Now that boom has ended and clearly African economic growth still seems tethered to commodity prices perhaps to a greater extent than expected. Thus, we now see increased impetus on the continent and scrutiny directed towards the continent on building up manufacturing and value addition capacity. . This is good news for Africa because the value of building up manufacturing, especially export-oriented manufacturing has long been an important story in countries pulling populations out of poverty. This is a chance for the fundamental reorientation of Africa’s economy which is long overdue.

Bear in mind that given the fact that China will shed 85 million jobs at the bottom end of the manufacturing sector between now and 2030 the question becomes: where will they go? Africa finally seems to be saying ‘Africa!’. Those interested in the African economy driving development, now due to the commodities decline, are seeing manufacturing taking its rightful place in terms of the priorities of the continent.

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Secondly, the commodities decline is very good news for East Africa. The region is minimally exposed to the commodities debacle. Yes there are new oil deposits that have been discovered in some of East Africa, but these have not been fully exploited yet so East Africa economies continue to grow in spite of the commodities decline. Let’s look at some figures based on average growth rate of about 3.4 percent for the global economy in 2016. Africa, for the first time in years is below the global average and is expected to grow at only 2.9- 3.2 percent this year, the slowest since 2001 according to some estimates. Compare this to East Africa where Kenya grew by 5.6 percent in 2015 and preliminary estimates suggest Tanzania registered 6.9 -7 percent GDP growth in 2015, Uganda around 5 percent, Rwanda was estimated to have grown at 6.9 percent in 2015 and Ethiopia at 6.3 percent a year between 2016-20. Please bear in mind getting data for some of these countries is difficult. But the point is that these are all well above the estimated African GDP growth rate of 2.9- 3.2 percent and the global growth rate. So the global community is alive to the fact that East Africa is really a bright spot and is a space where economies seem to be relatively unaffected by the commodities decline.

The message is simple: Africa should more fully exploit what it stands to gain from the commodities decline. There is plenty of good news therein.

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

What regional businesses should do to gain from Obama summit

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This article first appeared in The East African on July 23, 2015

The visit by US President Barack Obama to the region and for the Global Entrepreneurship Summit has caused a media frenzy. The President Obama’s visit and the GES have turned global attention to East Africa’s economic and business potential. GES is an important summit East Africans should be poised to take advantage of. But what should the East African businesses be looking for from the summit and thereafter?

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While seeking investments that may arise from GES, regional entrepreneurs need to do three things. First, they should seek to attract long-term patient capital; second, leverage impact investment; and finally find local partners in securing investment deals. East Africa’s economies are young and most entrepreneurs are still in their nascent stage of innovation, creating business activity that can fundamentally shift the structure and direction of the region’s economy.

However, because many entrepreneurs have new business ideas, they may not be sure how long they require for their ideas to take off, and the factors needed to direct the venture into a success that generates attractive returns.

Credit hunger

Sadly, East African entrepreneurs function in a domestic environment that tends to be risk averse and often they find difficulty securing capital to seed their businesses. This has created a culture of credit hunger that may push some entrepreneurs to accept any type of investment without doing due diligence required to ensure the investors they get are a right fit for their businesses.

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This risks the creation of a scenario where entrepreneurs attract vulture capital where investors (usually venture capitalists who fund risky and new ideas) deprive an inventor control over his or her own innovations and makes most of the money the inventor should have made from the invention. Local entrepreneurs should avoid this and do the due diligence on those from whom they seek capital.

Ideally, East African entrepreneurs should be looking for long-term patient capital where the investor is willing to make a financial investment in a business with no expectation of generating quick profit. Instead, the investor is willing to forgo an immediate return in anticipation of more substantial earnings later. This patience is crucial to give local businesses time to pilot, and get their products and models right so that they have a solid foundation on which consistent returns can be generated. Thus, entrepreneurs should look for the right investment partner rather than letting their credit hunger get the best of them and lead them into deals where they are at a disadvantage.

This leads to the next point, East African entrepreneurs should do their best, where it works, to leverage impact investment funds that seek to generate triple bottom line returns (financial, social and environmental) as this type of capital tends to be patient with an appreciation for returns beyond the financial. Thus, those whose business ideas feed directly into development and improving the lives of East Africans should look for impact investment funds in the US, a sector due to reach $1 trillion over the next few years according to JP Morgan and Rockefeller Foundation.

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Finally, entrepreneurs ought to seek to partner with local companies, particularly business incubators that have a credible track record in attracting capital from the US. This is important because the incubators are experienced in working with US investors and have an understanding of the key features a business should have to attract capital; they will let entrepreneurs know whether they are ready for US investment or not. Also, local incubators can offer young and new entrepreneurs the technical support and mentorship to strengthen their business so that the business is a stronger candidate not only for investment but generating healthy returns.

If East African entrepreneurs consider the ideas above, they will be well placed to ensure that they make full use of the GES and any future investment opportunities that arise from it.

Anzetse Were is a development economist, email: anzetsew@gmail.com; twitter: @anzetse

The race for Regional Hub status in Eastern Africa

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