Monthly Archives: November 2016

That Gambian election. And will SA get another reprieve?

By Rafiq Raji, PhD

Gambians go to the polls to elect a president on 1 December, another sham probably. Yahya Jammeh, the country’s longstanding leader, would sleep quite well on election night certainly. That is, even as the opposition presents a united front this time around. And then there is the much-awaited South African rating decision by SPGlobalRatings on 2 December. After the other two major rating agencies held their fire last week, it is not all too certain how the more hawkish rater would move.

Jammeh to swagger on
President Jammeh’s Alliance for Patriotic Re-Orientation and Construction (APRC) party has won the majority of votes in all elections since the first held under his supervision in 1996, two years after he rose to power in a military coup. On 30 October, at least seven Gambian opposition parties announced they would be presenting a single presidential candidate. Adama Barrow, the annointed opposition flagbearer is no match for Mr Jammeh, however, who goes into this latest polls after 22 years at the helm. It is all but certain he will win re-election. Rivals have either fled the country or been sufficiently stifled. Others are in jail. Were Ousainou Darboe of the main opposition party, the United Democratic Party (UDP) to be contesting, the election might actually make some pretensions to being competitive. Mr Darboe has complained severally in the past about the unfair electoral system in The Gambia. When Mr Darboe first ran in 1996, he won 36 percent of the vote, second to Mr Jammeh’s 56 percent. Mr Darboe did not do as well in subsequent attempts, even as he led varied coalitions and alliances at each turn. In July, he was sent to jail with eighteen others, after Gambian authorities deemed unlawful, protests he led calling for electoral reforms and Mr Jammeh to step down. At least, he got a trial. Critics of the Jammeh administration have been known to just disappear. Never mind that a recent military coup that took place in his absence failed. Such is his tight grip on the reins. Still, some unity on the opposition’s part is laudable. It matters little for the polls’ largely determined outcome surely. But it portends what is possible.

Tough talk, feeble action
Last week, Fitch, a credit rating agency, kept its one-notch above sub-investment grade rating for South Africa unchanged, but cut the outlook to negative. Moody’s, another major rating agency, also kept its two-notch above junk rating unchanged. The authorities’ success has much to do with the goodwill finance minister Pravin Gordhan enjoys with market participants, business leaders and indeed the rating agencies themselves. It is doubtful that but for his doggedness and stellar reputation the country’s rating would not now be in junk territory. Still, there are fears the inevitable is simply being delayed. The toxic political environment is likely to remain for as long as Jacob Zuma, the country’s president, continues in office. This is because the opposition – and increasingly, members of the ruling African National Congress (ANC) party – is determined to continue to irritate him. And his myriad baggage gives them ample ammunition. Still, even the slightest credit must be given to President Zuma: it is his adminstration after all. In fact, the South African experience might become a classic case of how to manage rating agencies. When there are concerted efforts by business leaders and a rating assessment is seen as perhaps the only way to rein in an otherwise errant government, some consideration on their part is possible. That has to be the explanation. For South Africa has breached almost all the rules in the book and yet managed to keep its investment-grade status. Still, even as Moody’s and Fitch talked tough but acted feebly in the end, it is not a sure thing that SPGlobalRatings would do the same. And the latter certainly did not have any qualms throwing the state power utility, Eskom, further down into junk territory last week.

Besides, growth is tepid and may be so for a while. True, authorities are making efforts to spur it. But the structural reforms needed have been challenging to bring about. And at almost each turn, every little progress is almost soon diminished by some pushback from entrenched stakeholders. Already, the recently announced miniumum wage, which is meant to reduce incessant labour actions, has been criticized by a major labour union. And all too frequent political bickering between the major political parties and within the ruling one make for an unpleasant cocktail. Corruption is also rife. And populism may win the day, as the struggling ultra-leftist opposition party, the Economic Freedom Fighters (EFF), potentially takes on a more militant approach. In any case, there is probably widespread frustration amongst the political elite. Many are astonished Mr Zuma has managed to survive this long in office, amid numerous allegations of corruption and public misdemeanour. While the South African judiciary has represented itself well, it has become all too writ large how vulnerable other political institutions are, or could be, at the hands of a deft political operator like Mr Zuma. Except for the judiciary, they have all become weaker under him certainly. It is now not unreasonable to think that they would probably be even more so the longer he stays in office. That Mr Gordhan is probably one of the few wedges against that eventuality, for the treasury at least, speaks to how the sands may shift all too quickly once he is out of the way. And considering how vulnerable his position remains, it may be a little bit optimistic to think Mr Gordhan would succeed in fending off his avaricious colleagues for much longer.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz.

Tight policy by CBN & SARB to continue

By Rafiq Raji, PhD

Central banks at Africa’s two largest economies, Nigeria and South Africa, are meeting this week to decide on interest rates. Foreign exchange scarcity and the consequent weakening of the naira is principally what is stoking Nigerian inflation, which has been on an upward trend since the beginning of the year. From a 2016-low of 9.6 percent in January, annual consumer inflation accelerated to an 11-year high of 18.3 percent in October. Still, the Central Bank of Nigeria (CBN) is widely expected to hold its benchmark lending rate at 14 percent, when it announces its decision on 22 November. Its South African counterpart, the South African Reserve Bank (SARB) may raise rates, however, by 25 basis points to 7.25 percent is my reckoning. At 6.1 percent in September, headline inflation remains outside the central bank’s target inflation band (3-6 percent). My forecasts (6.1 percent for October) put the headline outside of the band for the remainder of 2016 and first month of 2017. Even so, external factors like the imminent policy tightening by the American central bank and uncertainties about what a Trump-led America means for the world at large may be what tilt the SARB’s decision towards a hike. Not that there are not ample domestic worries that weigh on the inflation outlook: the continued negative political dynamic that sends the rand on a tailspin every other two weeks or so for instance. There is some relief though: surplus maize (the staple food) output is predicted for 2017, after drought-induced shortfalls in the last season. The SARB announces its decision on 24 November.

FX scarcity and politics limit CBN’s choices
The CBN’s monetary policy committee (MPC) would be making its decision this week amid an ongoing economic recession and tricky political environment: there is limited political space for it to raise rates; that is, if it desired to make the policy rate positive in real terms. In any case, there is probably no need for it to do so, as inflation likely reached its zenith in October, and could begin to slow from December onward; albeit all too slightly at first, at about 18 percent then. Even so, the CBN governor, Godwin Emefiele, in recent comments, has ruled out a rate cut anytime soon. At least, not at current inflation levels. More importantly for the CBN would be how to tackle the continued foreign exchange scarcity. It was confirmed last week that the CBN may seek extraordinary powers from the legislature to prosecute those who keep foreign currencies for more than a predetermined legal holding period, 30 days, say. Although the CBN says in news reports, by Bloomberg at least, that the proposed legislation did not emanate from it, it did not seem to object. The proposal comes against the backdrop of recent raids by security operatives on black market foreign exchange operators, mandating them to sell FX at a price directed by the central bank. In a nutshell, what has turned out to be a disappointing turn of events, after initial excitement that the naira would trade freely since its supposed float in June 2016, has worsened further. Much needed foreign portfolio flows would probably slow even more consequently, as fund managers hold back their funds for fear of getting burnt a second time. Prior to the float, the CBN frustrated the repatriation of capital abroad, with investors and businesses having their funds stuck in the country for much longer than even their most extreme risk model scenarios ever envisaged. Most lost money.

It is tempting to think that the reason there is FX scarcity is because crude oil prices have more than halved, with similar consequences for the revenue of government. An examination of the typical structure of FX flows into the country, in 2014 say, reveals that the dominant source of foreign exchange inflows is not the CBN or crude oil. Instead, it is the so-called autonomous sources that supply about 70 percent of needed foreign exchange, at least in 2014. These are those kept in domiciliary accounts, sold over the counter, and non-oil receipts by banks. In the current anti-corruption environment, the OTC sources have diminished significantly. And those in domiciliary accounts, which have risen as speculation is rife, remain just there. The CBN now wants to tap into that source. With the CBN’s foreign exchange reserves fast depleting on its stubborn but futile support for the naira, the central bank is clearly desperate. A suggestion to the CBN on how to tap domestic dollar deposits without resorting to coercion might be to issue a domestic dollar bond, like Ghana did. But even after that, it cannot run away for too long from the inevitable measure it must take: allowing the naira to find its level. Any solution that avoids that is never going to be sustainable.

Toxic politics and imminent Fed tightening may force SARB’s hand
The SARB’s MPC meeting this week comes against the backdrop of an almost certain rate hike by the US Fed in December and consequent strengthening of the US dollar in anticipation of it. President-elect Donald Trump’s expected fiscal expansionism adds to market sentiments buoying the dollar. Never mind that South Africa has upheavals of its own. The political environment remains toxic, spewing at every other occasion, some irritation or the other to rile market participants. Incidentally, at least one rating agency, Moody’s no less, is expected to reveal its rating assessment this week (25 November). Although it has South Africa two notches above sub-investment grade, its decision may lead the mood ahead of the much more anticipated decision by SPGlobalRatings in early December. Besides that, the inflation outlook suggests annual consumer inflation would remain outside the upper bound of the SARB’s 3-6 percent target range for the remainder of 2016 to January next year. Rand volatility weighs certainly. After showing some resilience to the now expected negative political event every other week, it almost lost its bearing, so to speak, once it became clear the US Fed was going to hike rates almost for sure in December – bets of a hike are about 100 percent in some cases. The dollar exchange rate of the rand has weakened by almost 10 percent over the past two weeks to 14.4 (18 November), a 2-month low. The SARB, although it would be loth to acknowledge this, might also want to pre-empt potential market volatility should SPGlobalRatings go ahead to downgrade the rating of South Africa to junk status in December. Short of a pre-emptory strike by the SARB, all these may be a little too much to bear for South African assets. These considerations underpin my reckoning that the SARB may raise its repo rate by at least 25 basis points to 7.25 percent this week.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz.

Bank of Zambia should cut rates

By Rafiq Raji, PhD

In my column of 9 August 2016 (“Zambians and their central bank decide”), I made a case for the Bank of Zambia (BoZ) to cut rates in November, by 350 basis points to 12 percent, say. That remains my view – its monetary policy committee (MPC) meets this week (14-15 November). Then, with the meeting scheduled just days before the 11 August presidential election, there were uncertainties about a potentially violent election aftermath and what that meant for the inflation outlook. There were fears the result of the Zambian election might not be accepted by the opposition. True, that came to pass. Still, much have mellowed in Lusaka, the capital city, and elsewhere. There were also concerns about a populist streak on the part of the incumbent, Edgar Lungu, who though thought likely to win – barely, was facing significant competition from the leading opposition candidate, Hakainde Hichilema. These concerns are no longer significant. The transition was relatively smooth, albeit there were pockets of violence here and there. But not so significant as to be concerning. And since then, the Lungu administration has said all the right things, with plans to embark on structural reforms under the guidance of the International Monetary Fund (IMF), which though having signalled its willingness to extend aid had rightly waited till the election was decided. More significantly, earlier fears of a populist tilt ahead of the election now seem thankfully misplaced: authorities plan to be fiscally responsible. Still, there is an urgency to boost growth. A desire for fiscal discipline and economic-stimulating policies are not necessarily cross-purposes. Was the scheduled August MPC meeting deliberately delayed to discount the influence of concerns about violence around the elections? Understandably, it was probably not fitting that the meeting take place with the election top of mind. With things now clearer, the delay seems quite wise. The decision this week could be one of easing. Why though?

Inflation has slowed, and should some more. 
Annual consumer inflation declined by a hefty 6.4 percentage points to 12.5 percent (my forecast was 12.7 percent) in October, albeit it picked up pace on a monthly basis, accelerating by 0.5 percent from 0.1-0.3 percent in the prior six months. By my reckoning, the annual headline could be about 8 percent in November and probably about 6 percent in December; broadly in line with my musings in an earlier column on 10 May 2016 (“Zambia to maintain tight monetary policy”) when I wondered if the headline might not slow to single digits before year-end. Food prices are likely to be stable over the course of the next few months to about a year, at least those for the ubiquitous mealie meals. Not only are the authorities building white maize reserves, they announced only last week that they had started exporting the priced staple food to neighbouring Malawi, some 100,000 tonnes. There are also indications that such would be the sufficiency that a subsisting ban on private sector exports of maize may be lifted in early 2017; the agriculture ministry says by January. Before then, authorities hope to have boosted the strategic grains reserve to 500,000 tonnes from 280,000 tonnes currently. So to that extent, negative drought effects on food supply would be largely mitigated. That is not the case for its ongoing biting effects on cheaper hydroelectricity production, though, which is all but diminished. Alternative but more expensive power supply sources are filling the gap. And they are now going to be dearer for consumers: tariffs are likely to be increased, as authorities now desire that they reflect actual costs, by end-2017, authorities say – it could be earlier if the IMF has its way.

2017 budget points to prudence
In his first budget speech on 11 November, newly appointed Zambian finance minister, Felix Mutati, signalled as much. Authorities plan to cut the fiscal deficit to about 7 percent of GDP in 2017, from about 10 percent projected for 2016. In September, Mr Mutati did point out that some pain would need to be endured by Zambians, ahead of an IMF package in Q1-2017. Populist polices, aimed at winning over the electorate ahead of the August election, would need to be rolled back in the event of a programme. Poor Zambians are likely to be hard-hit in regard of their electricity bills especially. The IMF is particulary insistent that fuel and electricity subsidies be removed. The authorities, eager for the aid package, are likely to comply, announcing as early as October, that it would gradually cut as much as $1 billion in subsidies, with the $600 million in fuel and electricity subisdies likely casualties. These, the IMF, in addition to needed structural reforms – like the sale of loss-making state-owned enterprises, would be crucial towards accelerating growth.

Growth could be higher
Authorities reckon growth would be 3.4 percent in 2017, from an estimated 3 percent this year. It could be higher, though. Yes, power shortages are likely to remain for another year at least. And true, government finances may still be relatively strained. But maybe not as much as expected. As at early November, copper futures prices had edged up for about 10 consecutive trading sessions, as hedge funds took bullish bets just days before the American election. In its aftermath, with a Donald Trump (an ultra-nationalist) victory, a rally ensued, as market participants reckoned planned infrastructure spending by his administration would boost demand for copper. Prospects of supply disruptions in Chile, the metal’s largest producer, also underpin sentiments, with major players believing the current supply glut may give way to a medium-term scarcity eventually. So, copper prices could recover significantly enough over the course of the year to boost the finances of the Zambian government. If these were to occur in an atmosphere of fiscal prudence under the watchful eye of the IMF, there is good reason to believe growth may be higher than the level authorities currently project.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz.

Yes, I’m with her

By Rafiq Raji, PhD

Americans go to the polls today (8 November), most of them that is; some already cast their ballots in early voting. The campaigns ahead of the election have perhaps been the most vicious and uninspiring in recent American history. There is currently a wave of populism sweeping through some western democracies. From the anti-immigrant sentiment that underpinned the decision of Britons to leave the European Union to the growing clout of similarly inclined politicians in France and elsewhere, isolationist rhetoric is winning the day, posing a significant threat to years of progress on global multilateralism, inclusion and integration. Hillary Clinton and Donald Trump, the two leading American presidential candidates, are bipolar opposites, in the most extreme of ways. As wife to an American president, senator and then secretary of state, Mrs Clinton, the Democratic Party nominee, has contributed to the shaping of global geopolitics for much of the past two decades. Her main opponent, the Republican Mr Trump, a billionaire whose wealth derives from tapping the vanity of Americans, is not similarly experienced. But considering how he has broken almost every rule and convention in American politics and still emerged the Republican Party flagbearer, underestimating him was a huge mistake. But even as a potential Trump presidency is no longer farfetched, Mr Trump, an unashamed bully, would irrespective of the outcome of the election come to exemplify that ugly side of ‘Americanness’ for some time to come. Still, the election is Mrs Clinton’s to lose. But will she win?

Beware of closet Trumpistas
Mr Trump is racist, rude, and disrespectful of women. And he ran a very dirty campaign. Both sides did actually. But it could be argued that with Mrs Clinton’s vast political experience and clout, it would have been almost impossible for Mr Trump to gain an edge over her with a clean one. So to that extent, there is some sanity in his madness. And considering how almost just as much Americans who might vote for Mrs Clinton would do so for Mr Trump, his rhetoric, reprehensible as it is, clearly resonates with not a few of them. Yes, even the educated ones, who for fear of backlash may not voice their support in public and in polls by the media, but may gladly do so in the privacy of the voter polling booth: closet Trumpistas may account for more than the margin of error in the lead Mrs Clinton had in media polls.

Some hitherto undecided voters also pitched their tents in Mr Trump’s camp in the week to election day. That is, before the country’s Federal Bureau of Investigation (FBI) reckoned Mrs Clinton did not commit a crime after all by using a private email server during her tenure as secretary of state. After clearing Mrs Clinton of any wrongdoing initially, the FBI revealed about a week to the election that it was examining newly discovered emails on a third party’s computer. The revelation proved to be costly for the potential first female American president: angst was that her carelessness could have caused state secrets to be stolen or glimpsed by unauthorised parties. Although it is not all too clear how much of that support she has regained after the FBI clearance just two days to the vote, the renewed suspicions may not have mellowed quickly enough for her to regain lost ground. Regardless, concerns raised by some leading Republicans like House Speaker Paul Ryan about her inexcusable negligence – she had to have known her error – on the email issue are not entirely without merit: Mrs Clinton did put American national security at risk.

Which of them is best for Africa?
Mrs Clinton, definitely. The Democrats are typically pro-black and pro-Africa. About sixteen years ago, Mrs Clinton’s husband signed the ‘African Growth and Opportunity Act,’ a deliberate and well-considered legislation that has proved to be better for African trade than the European Union’s ‘Economic Partnership Agreements,’ say. Similar Africa-friendly policies – ‘Power Africa’ and ‘Young African Leaders Initiative’ – by outgoing President Barack Obama, another Democrat, would likely be continued and probably enhanced under Mrs Clinton. Mr Trump’s anti-immigrant stance on the other hand, is very unnerving to African greener pasture-seekers in America, whose remittances are a major source of support back home. Not that Republicans are generally averse to the best interests of Africans or African-Americans. For instance, George W. Bush, the 43rd American president, appointed exemplary African-Americans, Colin Powell and Condoleezza Rice, to the secretaryship of state, probably the most visible public office after the country’s presidency. Mr Trump is an unusual candidate, however. His barely veiled white supremacist rhetoric is hardly just that: fears are it might become policy should he get elected. Even so, there is a risk Mrs Clinton may be complacent about the continent: Africa was barely mentioned during the campaign, if at all.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays);

Africans can judge themselves

By Rafiq Raji, PhD 

Unfair system makes easy prey of Africans
At least three African countries have announced plans to withdraw from the International Criminal Court (ICC). South Africa and Burundi would almost certainly be out by October next year. Many are likely to follow. Their reason? The ICC unfairly targets Africans. Established in 2002 to prosecute genocide, war crimes, and crimes against humanity, the ICC could as well relocate to Africa instead of its current wintry abode in the Netherlands. All but one – relates to allegations of war crimes in the 2008 Georgian armed conflict – of the ten cases currently being investigated by the ICC are related to African states. For a United Nations (UN) body, it is almost ludicrous that two permanent members of the UN Security Council do not subscribe to the court. China never ratified the Rome Statute, the treaty which established the ICC. The United States decided not to ratify the treaty in 2002, after having signed it two years earlier. The case of America, that supposed bastion of democracy and justice, is particularly shameful. Even as it has not subjected itself to the jurisdiction of the court, America, or any of the other three members of the Security Council, can block any case from being referred to the ICC. The United States would almost certainly stop any attempt to prosecute Israeli officials for alleged war crimes in Palestine. And under the current geopolitical order, it is very unlikely that Russia would allow the prosecution of the Syrian Assad regime, under whose watch that country has been virtually decimated. Not that that couldn’t change if the Russian regime suddenly rearranged its priorities, like its ever-scheming leader, Vladimir Putin, is wont to do.

Justice for all
If the ICC is to become legitimate, all members of the UN must be subject to its jurisdiction. Else, no African country has any business being a party to it. The ICC’s African tilt thus far certainly feeds the derogatory notion that Africans could not be trusted to dispense justice for themselves. Worse still, western exceptionalists are able to point to Africans’ longstanding mistrust of their ‘big men.’ And there might be some merit to that supposition, when you look at how justice is perpetually subverted in a lot of African countries. Ironically, the judiciary is probably the most credible institution left standing in most of them. Relatively, that is. For even as it was well known that judicial officers were similarly engaged in a myriad of corrupt activities, they at least went about their indiscretions with some sense of shame. And most of the corrupt ones tried to avoid ostentation. Not all of them it turns out. Considering how they had been largely left alone, the seeming impunity made some of them careless: Nigerian judges currently have a credibility problem, after raids on the homes of some very senior ones amongst them revealed they may have been living above their means. About a year ago, Ghanaian judges were actually caught on video by an investigative journalist demanding for bribe and sex, leading to the dismissal of at least twenty judges and magistrates. Still, judicial corruption is not peculiar to African countries, albeit it is more rampant. The South African system is probably as robust as it can get though. Regardless, Africans have demonstrated they can rise up to the cause of justice when needed: in May 2016, with support from the African Union, former Chadian dictator, Hissene Habre, was successfully prosecuted in Senegal for crimes ranging from torture to slavery during his almost a decade rule.

Empower the African court
At the core of the flawed state of the ICC is equity and equality. Is it a coincidence that most cases at the ICC are on African countries? Surely it is not the only continent where such atrocities have been committed. I am still personally distraught watching how Kenya’s Uhuru Kenyatta, a sitting African head of state, was made to go through the indignity of a trial on live international television. If that is not reminiscent of colonialism, I don’t know what is. Although the charges against him were eventually dropped, Mr Kenyatta has the unenviable record of being the first head of state to be so tried. I agree that victims of the violence during the elections that heralded his emergence deserve justice. But still, heads of states are treated with respect not because of who they are but because they embody the sovereignty of a people. Yes, most leave much to be desired. Even so, some pretensions matter: everyone deserves a certain level of dignity. I have heard arguments about the motive of the Zuma-led South African government in seeking to exit the ICC at this time. Critics of the South African move have suggested that given the country’s stature, it may have unwittingly provided cover for some not so well-regarded African leaders – ‘elected dictators’ – to now make similar moves. The Gambia proved the point all too quickly, announcing its withdrawal shortly after. No matter. There is an opportunity in the growing anti-ICC sentiment: the mandate of the AU’s African Court of Justice and Human Rights should be expanded.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays).