Africa should seize renewed global interest for prosperity

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This article first appeared in my weekly column with the Business Daily on September 30, 2018

Over the past few months, it has become clear that the world is multipolar and that Africa is seen as a key partner for all the different centres of global power. There has been a notable shift in attention from perceiving Africa as a continent of poverty and aid, to one for trade and investment.

The most talked about power is, of course, China which unveiled a USD 60 billion plan for economic engagement with Africa during FOCAC. Right along China is the USA which is creating the International Development Finance Corporation, an agency that can invest up to USD 60 billion in the developing world. According to the Financial Times, the new agency will spearhead private sector investment through both debt and equity deals, and make profits for the USA. The European Union (EU) is also on the money; reports indicate that the EU is proposing a new Africa-Europe Alliance for Sustainable Investment and Jobs involving a 25 percent hike in the EU Africa budget for 2021-27 to about € 40 billion. Japan will not be left behind. In 2016, Japan’s prime minister, announced that between 2016 and 2018, Japan would invest USD 30 billion in public-private partnerships in Africa. Other countries such as India, Turkey, the UAE, Russia and Brazil also have an eye on the continent with their own Africa-focused economic initiatives.

So the question is why the mad dash for Africa? Why now? There are several factors informing this renewed attention, the first of which is China. Africa would arguably, not be getting such determined attention particularly from Europe and North America, if China had not made such significant economic inroads into the continent. Old powers fear losing Africa to China, and have been forced to reassess their attitude towards Africa and make themselves relevant again.

A second factor is the fracturing of the Western alliance between Europe and North America; an alliance that has been the core of international power and influence since the Cold War. The UK is breaking away from the EU via Brexit, and the USA is contemplating putting sanctions on the EU and Canada, and moving away from NATO. Going forward it seems that a relationship that was once defined by cooperation and coordination will be increasingly defined by competition. Theresa May hinted at this shift when she stated that she wanted the UK to overtake the USA and become the G7’s biggest investor in Africa by 2022.

Image result for Africa business

(source: https://www.africanexponent.com/post/there-are-numerous-business-opportunities-in-africa-1610)

Thirdly, Africa has a new generation of individuals who are more educated than ever before, want prosperity at home, and have an entrepreneurial ambition and ability the continent has never seen. Africans are approaching investors, making business deals with players all over the world and proving not only that no one knows Africa like Africans, but that there is money to be made here.

Lastly, the world seems to finally understand that it is better for everyone when Africa is doing well. Whether this new focus is informed by an attempt to stem the flow of immigrants into Europe, or in response to sentiments of economic nationalism where publics have grown tired of sending billions to Africa and getting ‘nothing in return’, the impetus to focus on Africa’s economic potential is real.

The question now is: How does Africa leverage this renewed interest in the continent? How does Africa use the multiple offers to its advantage? We do not know when the world will next be so keen on Africa, we have to seize the opportunity at hand.

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

Investment in SMEs Hold Key to Africa’s Growth

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This article first appeared in my weekly column with the Business Daily on August 19, 2018

I am often asked this question, ‘What will it take for Africa to develop?’ And my answer is simple: Invest in Micro, Small and Medium Enterprise (MSMEs) whether formal or informal. Unknown to many, they account for an increasing share of growth in GDP and jobs. Yet the typical response is, ‘Oh but they’re so high risk, we can’t possibly invest in that segment.’ And this is the issue. MSMEs are the most marginalised in terms of access to funds and technical support, across the continent. Then everyone sits around wondering why economic growth in Africa doesn’t translate to equitable growth.

A trader arranges her products for sale on Customs Road in Mombasa last April.


In the past year or so in Kenya, we’ve seen private sector being squeezed out of credit by government. The interest rate cap created impossible risk margins and actually inverted monetary policy. Normally, a reduction in interest rates should expand credit provision, yet in the context of an interest rate cap, this logic fails. Lower interest rates lower the risk ceiling of credit provision and actually contracts liquidity. And reverse is true too. So where are we? We’re in a situation where monetary policy does not follow traditional logic streams, and as a result, has led to the Kenyan government to push private sector out of credit streams due to the interest rate cap and their own aggressive and substitutive appetite for credit.

So the question becomes: Given these extenuating circumstances, how can we revive credit to the private sector? There are two answers to that question. The first is incentives. Government has to create an incentives structure that extends credit to MSMEs despite the interest rate cap. The cap has led to a notable decline in credit provision to private sector. To stem this trend government has to create unique packages that allow private sector to access credit in the context of personalised assessment. The biggest problem with risk assessment at the moment is that it’s often done by junior officers with limited experience and who face hard and unforgivable targets. This has to change. Credit assessment should be done by the more experienced individuals who can understand the nuances of running an MSME. We need a holistic upgrade in assessing risk that leads to intelligent incentives provision. Because, if MSMEs are not financed, the economy is not financed. Government and financiers must create an incentives structures that drives funds to the MSMEs who create employment and fuel the economy.

Image result for sme kenya

(source: http://www.theeastafrican.co.ke/business/Kenya-launches-trading-floor-for-small-businesses/2560-1672302-123mcjn/index.html)

The second answer is development expenditure by government. First, government MUST prioritise development over recurrent expenditure. And that’s not enough, government should create structures that enable indigenous and domicile private sector to absorb the bulk of development spending. A failure to do so will translate to Kenyan taxpayers paying for services and goods that benefit outsiders. Let government ensure that the bulk of development spending goes to indigenous companies, particularly MSMEs. Only then will Kenyans feel the POWER of government spending. And in doing so, government will force MSMEs to improve their performance and develop the capacity to meet high level targets.

In short without MSMEs accessing credit and being the target of government development spending, not much will change. There must be a fortitude of spirit and determination of mind that builds the domestic private sector.

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


What Kenya and South Africa can learn from each other

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This article first appeared in my column in the Business Daily on October 16, 2016

Last week South Africa’s President Zuma made a state visit to Kenya highlighting the relations between the two countries. Beyond the agreements that have been reached, there are key lessons each country can learn from the other in terms of fostering robust and sustainable economic growth.

One key lesson for Kenya from South Africa is education; South Africa’s literacy rate is about 98 percent, Kenya’s is about 82 percent. But the real disparities reside in tertiary education. Currently only 4 percent of Kenya’s student population make it to tertiary education; in South Africa this figure is 20 percent. In terms of leading universities on the continent, South African institutions regularly top the list. In the Times Higher Education Ranking of the top ten universities in Africa, half are South African; and none are below number six. Only one Kenyan university (University of Nairobi) features in the top ten, and at number eight.

Image result for university of cape town classroom

(source: https://upload.wikimedia.org/wikipedia/commons/thumb/e/eb/UCT_Leslie_Social_Science_lecture_theatre_class.JPG/500px-UCT_Leslie_Social_Science_lecture_theatre_class.JPG)

Beyond ranking, a key concern of the Kenyan education is curriculum relevance. A report released by the World Bank this year stated that tertiary education in Kenya is characterised by a persistent mismatch of skills between what is taught and the requirements in the labour market. This is not to say that South Africa is perfect but at least there is an active, public interrogation of curriculum with active participation from government.  Kenya could certainly learn from South Africa here.

A second lesson for Kenya from South Africa is manufacturing and industry. South Africa is the continent’s most industrialized economy. Manufacturing contributes about 15.2 percent to South Africa’s; while in Kenya this figure has been stuck at 10 percent. This is not to say South Africa’s manufacturing sector is perfect, but Kenya could learn about increasing diversity in manufacturing. Manufacturing in South Africa is diverse constituting of numerous industries such as agro-processing, automotive, chemicals, ICT and electronics, metals and, textiles, clothing and footwear. Kenya’s manufacturing sector is dominated by food and beverages which constitute up to 70 percent of the sector according to some estimates. Again, Kenya can look to South Africa and learn how to diversify the complexity and build the role of manufacturing in the economy.

Now let’s look at what South Africa can learn from Kenya. East Africa is a bright spot in Africa largely because region is not commodity reliant. As the biggest economy in East Africa, Kenya’s resilience against the commodities slump is an important lesson for South Africa. A senior researcher at the South African Institution of International Affairs argues that the importance of commodities to South Africa’s economy cannot be overstated as they generate approximately 60 percent of South Africa’s foreign exchange earnings through exports. Indeed, the analyst makes the point that the commodities slump poses serious economic problems for South Africa, not only because of the extensive connectedness between mining and the rest of the economy, but the financial services sector was built on mining.

A look at South Africa’s export profile reveals that the top exports of South Africa are gold, diamonds, platinum, and iron ore.  The commodities slump has fundamentally negatively affected the economy particularly in managing the current account deficit.  South Africa’s economy shrunk by 1.2 percent in the first quarter of 2016; juxtapose this Kenya’s robust growth Q1 growth of 5.6 percent. South Africa could learn from Kenya better buffering its economy from commodities slumps.

The second lesson for South Africa from Kenya is black entrepreneurship. Given the complex history of South Africa and the legacy of apartheid, the face of South African private sector does not reflect the racial composition of its population. In fact there is a story that some in South Africa say that if whites knew how much money they would make by ending apartheid they would have voted against it a long time ago. And while programmes such as Black Economic Empowerment sought to rectify economic racial inequality, all it seems to have delivered is a few blacks contributing to white owned companies and hopping from company to another collecting dividends. South Africa has an important lesson to learn from Kenya in building black entrepreneurship. Indeed, some estimates state that the South African economy could grow by five percent in the future if the government and private sector invest R12 billion into 300,000 black-owned small businesses.

Image result for kenya small business

(source: https://anzetsewere.files.wordpress.com/2016/10/89a66-small-business-in-kenya-invest-africa-businesses.jpg)

Kenya understands the power of black entrepreneurship and as an article in the Mail and Guardian states, perhaps the most meaningful economic change for millions of South Africans can come from a focus on developing small enterprises.

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



How entrepreneurship can drive structural economic change

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This article first appeared in my weekly column with the Business Daily on January 17, 2016.

Entrepreneurship is increasingly being perceived as Africa’s silver bullet to ending poverty. All you need to do is start a business, the commentary promises, and with hard work, you’ll be rich. Such simplistic thinking is intellectually lazy because in order for entrepreneurship to make serious dents in Africa’s poverty, there has to be strategic direction and oversight. Directed and deliberate action to promote entrepreneurship can drive structural economic transformation, particularly industrialisation. Industrialisation is important for several reasons such as creating jobs, building disposable income and moving towards an export-oriented focus through which forex can be accrued so that millions are dragged out of poverty. So what components need to be in place to make this work?

 (source: https://anzetsewere.files.wordpress.com/2016/01/711ab-industrial.jpg)

The first is direction from government; and here there is good news for Kenya. Late last year government developed the Industrial Transformation Programme which charts out a strategy to build manufacturing and industry in sub-sectors such as agro and fish processing, textiles and apparel and leather. It seems as though this programme will be coordinated with the Kenya Industrialisation Policy (2010) which acknowledges the need to build supporting features for industrialisation such as transport infrastructure, energy, ICT and, water and sewerage. Bear in mind that there are critics of Industrial Policy and many African governments have been advised and in some cases convinced not to pursue aggressive industrialisation policies in the name of deregulation rooted in ‘small government’. African leaders have been given numerous examples of where Industrial Policy failed such as those pursued by some Latin American countries in the 1990s and even in Africa. But the truth is that in some countries such policies have worked in areas such as East Asia and even in the very regions whose governments are anti- Industrial Policy when it comes to Africa.

Africa should stay focused and push for robust Industrial policy because as the Foreign Policy magazine aptly states, failures in Industrial Policy say more about how to do industrial policy- not whether it should be done. As a result, Foreign Policy continues, the Kenyan government and others serious about industrialisation may well have renegotiate, and re-design previous international trade commitments, and refuse to sign new ones that put them at a disadvantage. The creation and pursuit of Industrial Policy, particularly in the context of regional economic blocs can provide a foundation on which enterprises can be developed or supported to start in a manner that drives industrialisation forward.

The second element required to allow entrepreneurship to drive industrial change is strategic financing. The Industrial Transformation Programme already has provision for an Industrial Development Fund but further steps ought to be taken. Government can do what is possible with regards to financing industry-focused enterprises but the private financial sector has to play a role as well whether these are Banks, Equity Funds, Venture Capital Funds, Angel Investors or Impact Investors. Specific, targeted and coordinated financing ought to be made available to credible industry-focused businesses. Through such coordinated, sector-specific lending buttressed by proactive Industrial Policy, a gradual transformation can occur in terms of the composition of businesses that make up Kenya’s, and indeed Africa’s, economy.

(source: http://amoreec.com.sg/wp-content/uploads/2014/11/Money-Sign.png)

The final element and perhaps the most important, is robust and uncompromising anti-corruption oversight; without this the aforementioned will simply not work. If corruption sullies the strategy detailed here, businesses will be selected for financing in the spirit of cronyism and building favour banks rather than in the spirit of culling out weak enterprises such that the best rise to the top. Corruption will also make analysis impossible and analysts will be unable to determine elements of the strategy that are working and those that ought be modified or dropped altogether.

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