Category Archives: Tweets

macroafricaintel Daily Brief | 17 Mar

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji, @macroafrica

Global Markets

  • Asian stocks fall in volatile session after historic Wall St. plunge
  • MSCI Asia-Pacific ex-Japan down 0.5%
  • Nikkei down 0.06%, KOSPI off 2.16%
  • Australia shares up 2.73%
  • Market focus on COVID-19 fiscal response
  • Flight to cash; confidence in gold suffers

Oil Markets

  • Oil prices jump $1 as sharp falls draw investors, bargain buyers
  • Brent up 1.8% at $30.60 a barrel (0410GMT)
  • WTI up 3.7% at $29.76

Precious metals

  • Gold extends losses from Monday’s meltdown on flight for cash
  • Spot gold down 0.2% at $1,511.30/oz. (0039GMT)
  • US gold futures up 1.7% at $1,511.50/oz.


  • Soybeans recover from 10-mth low, gains capped by virus worries
  • Soybeans rise for first time in 5 sessions, corn ticks up
  • Wheat struggles as spreading virus raises economic worries
  • Soybeans up 0.8% at $8.28 a bushel (0251GMT)
  • Corn up 0.3% at $3.55-3/4 a bushel
  • Wheat unchanged at $4.98 a bushel

Key African events or data releases today
[Posts & comments at my Twitter handles @DrRafiqRaji, @macroafrica]

  • Nigeria’s ruling APC top officials meet
  • Nigeria inflation Feb-20 [fcst. 12.2% yy, prev. 12.1%]
  • South Africa central bank MPC meeting; 17-19 Mar
  • Nigeria’s supreme court rules on review application on Zamfara gubernatorial election [Negative; albeit recent precedents positive]

Key African events or data releases yesterday & early a.m today

  • More African countries confirm first coronavirus cases as Jack Ma pledges aid
  • Tunisia suspends all international flights, closes its land borders
  • Egypt reports 2 deaths and 40 new cases of coronavirus to a total of 166 – ministry
  • Nigeria to delay non-critical spending, defer eurobond sale – finmin
  • Libya’s oil production at 91,108 barrels per day as of March 15
  • Mozambique queried $535 mln loan guarantee, VTB says in court filing
  • Libya’s state oil firm says jet fuel illegally shipped to east
  • Egypt cuts interest rates by 300 bps in face of coronavirus
  • Sudan closes airports and borders except for humanitarian and commercial shipments over coronavirus fears
  • WHO calls for “change of mindset” to overcome pandemic shortages
  • South Africa assets plunge as coronavirus panic worsens
  • Africa Oil – Weak demand weighs, Angola programmes due
  • AngloGold Ashanti tightens quarantine policy after Ghana worker gets coronavirus
  • South Africa cenbank: rates decision announcement scheduled for Thursday
  • Sudan declares public health emergency amid fears of coronavirus spread
  • Tunisia’s Tunisair to lose $24.6 mln this month, CEO says
  • Algeria to suspend travel with Europe and Africa
  • Egypt to halt flights from Thursday to stem spread of coronavirus
  • Nigeria’s central bank to create fund to fight coronavirus
  • Libya’s NOC says jet fuel illegally shipped to east
  • World Bank offers $60 mln to Kenya to fight coronavirus outbreak
  • Libya’s Tripoli-based govt agrees $27.9 bln budget – source
  • Kenya’s Safaricom waives some M-Pesa transfer fees amid virus outbreak
  • South Africa’s will have to “shift” spending to tackle coronavirus – finmin
  • Nigeria’s central bank to create health fund in coronavirus package – governor
  • South Africa’s Taste Holdings to liquidate food business, hitting 770 jobs
  • Somali confirms first case of coronavirus – health minister
  • Tunisia land border with Libya closed – minister
  • Morocco to close all mosques over coronavirus fears – statement
  • Tanzania confirms first case of coronavirus – ministry
  • OPEC+ calls off technical talks, mediation attempts fail – sources
  • Conferences, events cancelled at South Africa’s Sun International over virus fears
  • Morocco to close non-essential public places starting today – Interior Ministry
  • Zimbabwe shuts down main source of hard currency as local dollar crumbles
  • Kenya raids shop selling fake coronavirus kits as Liberia confirms first case
  • Uganda shilling weakens due to commercial bank dollar demand
  • South Africa consumer confidence sinks to 2-1/2 year low – survey
  • Kenya shilling weakens as coronavirus concerns weigh
  • South Africa’s Old Mutual wants new CEO within months; shares drop after earnings
  • South Africa’s Taste Holdings to liquidate three food businesses
  • South Africa’s Sun International reports 91% jump in full-year profit
  • South Africa’s Old Mutual reports 7% rise in full-year profit
  • Rwanda says number of coronavirus cases rises to five

N.B. Full stories of above headlines are available on Reuters

How are Africa’s sovereign wealth funds being managed?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In late March, news broke that Jose Filomeno dos Santos, son of the former Angolan president, Jose Eduardo dos Santos, and now former chairman of Fundo Soberano de Angola (FSDEA), the $5bn Angolan sovereign wealth fund (SWF), had been charged by his country’s prosecutors for fraud over the transfer of $500m from the the central bank’s account with Standard Chartered in the UK. Former Banco Nacional de Angola governor Valter Filipe da Silva was also charged.

A month later, the still new government of President João Lourenço fired Quantum Global Investment Management as FSDEA’s fund manager. The revelations about FSDEA’s governance troubles during the dos Santos era are not entirely surprising: Quantum was the sole investment manager; albeit it had a good performance record. When queried about potential governance issues while still chairman of FSDEA, José Filomeno usually cited the Santiago Principles, a set of good governance rules and principles drawn up by the International Forum of Sovereign Wealth Funds (IFSWF) that the FSDEA had signed up for. And to its credit, FSDEA was ranked 8 out of 10 by the Sovereign Wealth Fund Institute (SWFI) in February 2015 for its transparency.

This begs the question of how in spite of such supposedly stellar governance values, the FSDEA became enmeshed in its current controversy. A development financial institution (DFI) chief executive who spoke to African Business on condition of anonymity put the FSDEA dilemma rather well: “It is not about what you sign up to but what you actually do.”

He has a point. Even so, many SWFs are indeed accountable to their parliaments and do adhere to strict rules. The Angolan case is an exception, not the norm. And there is probably more politics at play than a genuine concern about governance. Because had power not change hands in Luanda, the less-than-flattering revelations about FSDEA and its former chairman may have simply been resolved quietly. So, the investigations are probably more motivated by President Lourenço’s seeming determination to purge the patronage structures of his predecessor, whose long rule means his supporters and loyalists still permeate Angolan officialdom.

Ex post exposure
In some cases, the problem is not so much about poor governance as it is a lack of experience. In June 2016, 10 years after its founding, the $67bn Libyan Investment Authority (LIA) took Goldman Sachs, an investment bank, to court in London over what it deemed risky investments made on its behalf in 2008 during the rule of former longtime leader Muammar Gaddafi. LIA also took issues with Société Générale, a French bank, over about $2.1bn worth of controversial trades in 2007–09, a matter which also ended up in court. In the end, the banks were exonerated. Why? It came to light that the investment managers at LIA did not actually understand the complex derivative products sold to them by the banks. As it is their responsibility to know what they are investing in and ultimately their decision whether to invest or not, the banks could not be blamed.

Even with strongman Gaddafi no longer around, the LIA is still fraught with problems; more political than governance-related as well. Until 2016, there were two claimants to the chairmanship. AbdulMagid Breish, was appointed head of the LIA in June 2013, about a year before rival political factions jostling for power in the aftermath of Gaddafi’s demise, split the fund. The second, Hassan Bouhadi, was appointed in October 2014, by the ruling faction of the country stationed in the east. Although Mr Bouhadi later resigned in August 2016, the saga speaks to the governance quagmire in the SWFs of countries where the rule of law is either weak or are ruled by strongmen and monarchies. Or both.

There are six African members of the IFSWF: Agaciro Development Fund (Rwanda), FSDEA (Angola), Ithmar Capital (Morocco), LIA (Libya), Nigeria Sovereign Investment Authority (Nigeria) and The Pula Fund (Botswana). Should there be concern about them having similar governance issues? The above-mentioned African DFI chief executive posits the Nigerian case thus: “It is less likely to happen in Nigeria as we are not yet “owned” by one family like Angola was.”

Uche Orji, chief executive of Nigeria Sovereign Investment Authority (NSIA) explains why such troubles are not likely to happen at the institution he runs: “The NSIA board is an independent and professional board with proper oversight of the activities of NSIA through five committees which meet regularly. We publish our annual audited accounts as well as quarterly audited accounts. Our investment guidelines limit the exposure we can have to any one portfolio manager… who has to meet a minimum qualification criteria to manage our funds… Just for our private equity allocation alone we have more than 15 different portfolio managers”.

Watch actions, not words
“Rest assured the issues mentioned in the press about the Angola SWF (I must caveat that I don’t know the veracity) can never happen at the NSIA. Will there be occasions when investments could have challenges, that is for sure, but we have sophisticated risk management tools (provided by UBS [a Swiss investment bank]), a strong board and processes that guide management’s action”, Mr Orji says.

Examples would help surely to demonstrate how these processes operate in practice. Orji obliges: “For example, I deliberately asked the board to keep management spending limits very low for over five years at no more than N20m ($56,000) and anything above that requires board approval. We undergo audits more than six times a year… four by PwC, one by [Nigeria’s] auditor-general and one by [Nigeria’s] accountant-general. [And] the internal auditor reports to the board directly.”

Regardless, concerns remain about potential interference in the affairs of the NSIA (as is indeed the case with other African SWFs). Is the Nigerian government not able to interfere in the NSIA like past ones did with the central bank, to allocate more funds than are allowed in its investment policy statement, to infrastructure, say? Orji insists the NSIA’s independence has been respected thus far. He also cites how the fund’s governing law is a source of restraint to all stakeholders.

Orji buttresses his points further: “We reject 99% of project requests that we get. There are some we have asked for and we did not get. If we don’t think we’ll get our money back, we won’t do it. Every dealing with government is governed by contract.”

What if the government cannot fulfill its obligations or chooses not to? The NSIA chief says every contract entered into specifies how the fund would get its money back, including arbitration and litigation. Besides, risk management strategies are also employed to reduce the probability of potential losses or holdups.

Could the NSIA perhaps be the role model for other African SWFs? Time will tell. Fact is, though, many African SWFs are exemplary. For example, Botswana’s Pula Fund has not suffered any scandals and has been around for much longer than the ones that have recently been fraught with problems. In any case, there is a need for greater scrutiny of these institutions to keep them honest. Questions have been raised about the real motivations of some investments in state-owned enterprises (SOEs) by South Africa’s Public Investment Corporation (PIC), for instance. And recently, it came to light that The Abraaj Group, a United Arab Emirates private equity investor with significant African interests, may be liquidated on the back of issues related to poor governance than performance. Incidentally, there was no evidence of fraud. But the bad press from what were largely internal failures, whether at the FSDEA, LIA or The Abraaj Group, may have longer term consequences for investor confidence. Global investors would almost certainly re-evaluate how they choose to invest on the African continent. There is probably not much damage that has been done, though; especially if these incidents spur stronger governance standards and practices.

An edited version was published by African Business magazine in July 2018

Would foreign banks be beneficial for Ethiopia?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In June 2018, Ethiopia’s new prime minister Abiy Ahmed survived an apparent assassination attempt. The attack was not entirely surprising. Mr Ahmed had been ruffling quite a lot of feathers. He purged the military hierarchy, instituted reforms at businesses owned by the military, and signalled the liberalisation of crucial sectors like banking and telecoms; if not for anything else, to ameliorate a perennial foreign exchange shortage. Fears have been raised about whether allowing foreign banks to participate in the Ethiopian banking sector would be beneficial to the country. Not that there was not already some representation by foreign firms. Some already operate representative offices, for instance. But the goal has always been to be able to operate fully-fledged banks. The Ahmed administration is a potential ray of light in this regard; albeit the government insists opening up the financial sector is not being considered at this time. Years ago, this might be taken with all seriousness. But the Ethiopian government rarely signals its policy drift. The recent positive policy moves were a huge surprise, for instance.

Opening the gates
In early June 2018, the Ethiopian government announced it would allow domestic and foreign investors to take stakes in Ethio Telecom, the state-owned telecoms firm and Ethiopian Airlines, the state-owned carrier.[1] Other state-owned enterprises (SOEs) up for grabs are Ethiopian Power and Maritime Transport and Logistics Corporation.[2] The state would still retain majority stakes in them, however. Regardless, it is a huge change in policy. In a speech to Parliament in June, Mr Ahmed suggested any sale would be gradual, however; over 10 to 30 years. He was probably being mindful of political sensibilities. A serious plan could not be that longwinding certainly.

More importantly, as much as 40% of Ethio Telecom, which has some 60 million active subscribers already, could be sold to foreign operators like MTN, Vodacom and others who have long expressed interests in operating in the country.[3] The government added a caveat, however, asserting it would need to do a study over a year or two before any policy move.

No such profound pronouncement has been made for the financial services sector talk, however. For the banking sector, there have been some participation by foreign niche players. In February 2015, Ethiopian banks launched mobile money services with the help of foreign fintech firms: “helloCash” by BelCash, a fintech firm based in The Netherlands and “M-Birr” by MOSS ICT, a fintech firm in Ireland.[4] Another example of a foreign financial services company long operating in the country, albeit in partnership with Ethiopian banks, is Visa, a credit and debit card company. Since 2004, it has been providing card services to customers of Ethiopian banks. Despite its vintage in the country, however, it has long asked for room to do more.[5]

And as early as 2015, the government indicated it wanted to develop a secondary fixed income market[6] There have been some changes in the financial sector, nonetheless. In June, a new governor was appointed for the National Bank of Ethiopia (NBE), the central bank.[7] There is not much to suggest governor Yinager Dessie, who used to be head of the national planning commission, would be making significant policy changes. Much store is to be put in what Mr Ahmed says and does. And for the banking sector, there is not much as yet. It is certainly inevitable that full banking licenses would be granted to interested foreign banks at some point in the future; especially as the telecoms sector was much more coveted by the government.

Besides, the government already allows some foreign participation in the banking sector. In April 2016, for example, the Ethiopian legislature made amendments to its banking laws as it joined the African Trade Insurance initiative.[8]

Some foreign banks seized the opportunity when the rules were first relaxed. The European Investment Bank opened an office in July 2015, for instance; lending to mostly state-run infrastructure projects.[9] So did South Africa’s Standard Bank months later in October 2015.[10] Other foreign banks in Ethiopia are Commerzbank, a German bank, the Export-Import Bank of India, Bank of Africa, and so on. [11] The trailblazer was Turkish state-owned Ziraat Bank, however, opening an office in April 2015.[12]

That said, there was similar enthusiasm about these sectors being opened up in early 2015. At a summit in Addis Ababa, organised by The Economist, a British newspaper, it was the telecoms sector that seemed like the government had no plans to consider foreign investment at all.[13] Instead, it indicated that it would be more receptive to liberalising the banking sector. That the case is now the reverse, points to the spontaneity and unpredictability of the Ethiopian government; irrespective of who is in power. Besides, any liberalisation of the banking sector would have to be clear on whether banks would still be required to deploy almost a third of their funds to government bonds. There is also the fear that any privatisation programme could be marred by corruption, as has been the case in other African countries, and in fact, elsewhere.[14]

Regardless, something drastic has to be done to stem the country’s economic troubles. China, hitherto a reliable foreign partner for the erstwhile socialist-styled Ethiopian government, has lately been less enthused. Perennial difficulties in securing foreign exchange and tapped out indebtedness by the Ethiopian government to its Chinese counterpart, are reported to be making the Asian nation slow down the pace of its investment in what has perhaps been an exemplary African country; especially in terms of its industrialisation and infrastructural development efforts. In the most recent decade, the Chinese have provided loans to Ethiopia in excess of $13 billion, which were used to develop various infrastructure projects: roads, railways, dams, industrial parks and so on.[15]

There might be other reasons that China is cooling on Ethiopia. Its ambitions in Africa are expanding. And it is likely finding investments elsewhere to be paying off more. Its first army base in Africa is in neighbouring Djibouti, for instance; a nation which Ethiopia incidentally depends on for a way to the sea. Thus strategically, Djibouti is a more strategic partner than Ethiopia.

Kenya, a bigger economy nearby, is also proving to be more exemplary of how China would like to be seen on the continent. Thing is, if the Chinese, perhaps the most ardent supporters of the regime hitherto, now worry about the FX and debt crisis, the problem must be really bad. It certainly points to the urgency for the government to liberalise some sectors of the economy for foreign participation. And if the Ethiopian government is indeed serious about tackling the FX shortage problem, and there are indications it is, the Ahmed administration at least, then the two sectors that it must liberalise at the earliest time possible are the telecommunications and banking sectors.

The Ethiopian government has been sending mixed messages. On the one hand, the Prime Minister has been signalling a change in the way things are done. And yet, another part of the government says something else. In April, the month Mr Ahmed assumed his new position and adopted a refreshingly reformist drift, President Mulatu Teshome Wirtu suggested it was investments in manufacturing that the government was interested in and not the telecoms and banking sectors. It is important to point out at this point that it is not that the government has not been receptive to foreign investment. Because even before the Ahmed administration, the longevity of which is still uncertain, the government had already been relaxing investment restrictions. Hennes & Mauritz (H&M), the Swedish fashion retailer, already has a factory in Ethiopia, for example.[16] So does the American fashion giant PVH.[17] In December 2017, the state also sold the National Tobacco Enterprise to Japanese investors for $434 million.[18]Unilever, the global consumer goods company, has been operating in Ethiopia since 2016.[19] Besides, foreign hotel chains like Hilton, Marriot, Sheraton and so on have been operating in the country for quite a while. [20]In other words, the president was simply reiterating what has been official policy all along.

Aid is not free
The upheaval in the majority Oromo areas that birthed Mr Ahmed’s premiership remains; albeit subdued. Long suppressed by the hitherto ruling Tigray minority, Oromos took to the streets in spite of almost sure death, imprisonment or torture, indicating they had had enough. Mr Ahmed, an Oromo and thus a beneficiary of their struggle, has thus far not disappointed them. He has perhaps been moving too fast, though. But in light of the recent attack at a rally of his supporters, which is widely believed to be a failed assassination attempt and one of many planned attacks to cripple the economy, he may have rightly judged speed to be of essence. Thankfully, there is no sign that he has been cowed by the unfortunate incident. Instead, he seems even more energized.

The Ahmed government does not seem to be in a hurry to liberalise the banking sector, however. That is probably a mistake. Unless Ethiopians begin to see meaningful change in their standard of living, it might be only a matter of time before his popularity begins to wane. Without a doubt, an immediate solution to the foreign exchange shortage and myriad economic problems crisis, would be to liberalise key sectors of the economy. Allowing foreign participants into the banking sector would allow for new FX flows and expertise needed to develop the country’s virtually non-existent capital markets.

The consequent change could be potentially overwhelming for a bureaucracy and political class long nurtured on a cautious approach. Thus, the necessary quick changes the Ahmed administration has to put in place are fraught with huge risks; for him, the stability of his government and indeed a somewhat pampered socialist-oriented populace. All indications suggest Mr Ahmed is up to the task, however. But he is only one man. For the needed changes to materialise, he would have to carry an old-school bureaucracy along.

Even so, the aforementioned troubles would not entirely prevent the economy from growing at what are still remarkable growth rates. But unless something drastic is done, ertswhile double-digit growth rates would be increasingly elusive. Still, the International Monetary Fund (IMF) reckons the Ethiopian economy should grow by about 9% in the current year. That would be a slowdown from the remarkable heights of the past decade. Foreign exchange reserves are just enough to cover about 2 months of imports or less; about $3 billion. In fact, imports have been four times as much as exports in recent years. Without at least as much exports, the differential has to be filled from external loans and aid.

The new administration currently enjoys some goodwill, however. In mid-June 2018, the United Arab Emirates (UAE) deposited $1 billion with the central bank and pledged another $2 billion in investments to the country. The government says the investments would be in tourism, agriculture and renewable energy. All these came about during a visit by Crown Prince Mohamed Bin Zayed of Abu Dhabi in the month.[21] It is believed the generosity of the prince may not be unconnected to Mr Ahmed proving to be an excellent host.

But the goodwill is not going to last forever. And the aid, like almost every other, is not likely to be entirely free: The UAE might be desirous of certain considerations. Just nearby, in Djibouti, where Ethiopia is influential, the Arab country was kicked out of a lucrative sea port concession. Thus, it is doubtful it is giving the new money totally out of the goodness of its heart.

Expertise, capital and jobs
KCB Group, Kenya’s largest bank, which opened a representative office in Addis Ababa in 2015, and has branches across East Africa, is one of many African and indeed foreign banks likely to make a foray into the Ethiopian banking sector. Clearly banking on the new reformist prime minister, it announced in late June the country could open its banking sector in about two years’ time.[22] There would certainly be a lot of opportunities for newcomers.

According to the central bank’s website, there are currently 19 local banks in Ethiopia.[23] [24] That is about 6 banks for every 1 million Ethiopians. This is clearly inadequate; albeit this is not necessarily an intelligent measure, especially when you consider that the Commercial Bank of Ethiopia has about $18 billion in assets and a customer base of about 16 million. A couple of foreign banks have representative offices in the country but are not licensed to conduct plain vanilla banking services; that is, collect deposits and issue loans. The reformist Ahmed government has raised hopes that this might change, however.

It begs the question, though, about whether such a move would be beneficial. The government, old and new, is particular about financial inclusion. Incidentally, even in African countries where there are more liberal policies, financial inclusion remains a challenge. According to the World Bank, financial inclusion “means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.[25]

The key question then is whether allowing foreign banks to participate in a country’s financial services sector engenders financial inclusion. The evidence is mixed. In fact, there is probably not much that they do in this regard. There are a few good stories, of course. For instance, some foreign financial firms specialise in microfinancing. But they are usually a drop in the ocean and not necessarily cheaper or sophisticated than local ones. The Ethiopian government is right to prioritise financial inclusion. According to the World Bank, it is “an enabler for 7 of the 17 Sustainable Development Goals (SDGs)” and reckons it to be crucial to poverty alleviation and shared prosperity. To this end, it has set a global goal of Universal Financial Access (UFA) by 2020, just two years away. Would this goal be reached by then? Probably not. But much progress is being made. More relevant here is whether foreign commercial banks help with this goal.[26]

Quite frankly, financial inclusion cannot be the main reason for allowing foreign banks in to a country. Their advantages relate to the new capital they bring for the use of local and foreign firms doing business in the country. They also allow for more seamless trade. It is much easier to do business with a bank in-country as well as abroad for international trade, for instance. But pushed rightly, foreign banks can help with such idealized goals as financial inclusion. They certainly are able to deplore the latest technologies in this regard. That is as far as most would go, though. Brick and mortar branches add on unnecessary weight. And increasingly, when foreign banks make a foray to another country, they rely on local deposits to fund local loans.

Their real advantage for a country are big ticket transactions. It is easier to get financing for mega projects by firms if foreign banks operate in the country. True, while foreign multilateral development financial institutions do provide some funding, commercial ones not backed by their country’s government rarely do. Besides, there is a need to differentiate between foreign banks that are from other African countries and those outside the continent. Although, it is the latter than tend to get all the attention, the former have their advantages too. For instance, if a Kenyan bank is able to do business in Ethiopia, the gesture is expectedly reciprocated for an Ethiopian one in Kenya. But since a Kenyan bank might have no more heft than an Ethiopian one, it is not surprising that the more capable western and eastern foreign banks are the ones much sought after.

In any case, South African banks remain dominant on the continent. The largest, Standard Bank, is excited about the Ethiopian opportunity, certainly. With a Chinese bank in its shareholding, it is increasingly the go-to-bank for transactions with the Asian nation. At least, it likes to portray itself as such. That is probably where the opportunity is. That is, pan-African banks looking to expand to Ethiopia.

Otherwise, Western banks have been cutting back on their African exposure. Barclays, a British bank, is a recent example. Curiously, even these Western types might be interested in an Ethiopian venture. Investment banks are certainly keen. A capital market is virtually non-existent. Technology and expertise would probably be the key benefits.

For these to be realised, the Ethiopian government would need to liberalise the sector as quickly and as widely as possible. For if there is any whiff of uncertainty or hesitation in whatever liberalisation policy is announced, there might not be many foreign banks willing to take the risk. Potential investors would also be looking to see a more institutionally-directed and sustainable shift towards reform.

Currently, it could be rightly said that there is a one-man risk. Were Prime Minister Abiy Ahmed to leave the scene, what then? And judging by the relative slow pace planned for banking sector reforms, Mr Ahmed may not be in office long enough to make a meaningful impact. Thankfully, there is an almost existential need to attract foreign capital. The perennial foreign exchange shortages would in due course spur even more protests as jobs become increasingly scarce and commodities more expensive. Nothing short of comprehensive reforms of the banking sector would do to resolve the problem.


Banks in Ethiopia
1. Awash International Bank
2. Commercial Bank of Ethiopia
3. Development Bank of Ethiopia
4. Construction and Business Bank
5. Dashen Bank
6. Wegagen Bank
7. Bank of Abyssinia
8. United Bank
9. Nib International Bank
10. Cooperative Bank of Oromia
11. Lion International Bank
12. Zemen Bank
13. Oromia International Bank
14. Bunna International Bank
15. Berhan International Bank
16. Abay Bank S.C
17. Addis International Bank S.C
18. Debub Global Bank S.C
19. Enat Bank S.C

Source: National Bank of Ethiopia

Do foreign banks help?
What has been the actual experiences of countries that allow foreign banks to participate in their financial services sector, African ones especially? International banks have been pulling out of Africa lately. Some of the reasons include a realisation that local banks have a greater edge. Another is how shallow most African markets still are. Trade finance was the main draw for the increased interest of foreign banks up until the global financial crisis in 2007-08.[27] When commodity prices slumped, however, it became writ large how susceptible most African economies remain to the volatile commodity markets. With problems of their own, international banks began to roll back their African operations to what they deemed to be more realistic levels. And quite frankly, foreign banks were a little surprised by how hard it was to beat local ones.

That said, some remain firmly in place; more agile operations are the norm, though. The few global banks, which seemed determined, are treading carefully nonetheless. In November 2011, JP Morgan, an American bank, started offering some services in South Africa and announced it planned to open representative offices in Nigeria and Kenya.[28] That chief executive Jamie Dimon was still talking about JP Morgan’s plans for Kenya in January 2018, seven years after, speaks to the mixed case for international banks in Africa.[29] Credit Suisse preceded JP Morgan in South Africa, setting up an office in Jan 2011.[30] Barclays also moved its Africa headquarters to the continent from the United Arab Emirates in 2012, buying a controlling stake in ABSA, a South African bank[31]; albeit its optimism was short-lived: it recently sold the African business. Another was China’s ICBC, opening an office in South Africa in November 2011.[32]

What was the major attraction? Developed economies were either in recession or growing very slowly and yields were extremely low or negative. But here was a continent with more than 1 billion people, with millions unbanked and much more underbanked. Adding to that, it seemed Africans were beginning to prosper: a supposedly growing middle class was much vaunted. But the main driver for most global banks’ resilience about their African vision was a desire to hold on to all of their clients’ businesses in every part of the world. Why should a client be allowed to go to another bank for its African business and risk losing it in the process, it was reasoned. It proved to be dearer than planned: The clients did not necessarily do frequent transactions for and with their African subsidiaries. Or better put, the volume of transactions was not so much that they could not be undertaken from the banks’ hub branches, a central African location or both.

Research suggest foreign banks do not always help the financial development of poor countries. According to an IMF working paper in 2006, in countries with more foreign banks, credit to the private sector and access to credit in general tend to be lower.[33] Consequently, there is also usually slower credit growth. The paper argued foreign banks tend to be more beneficial to advanced countries. Thus, the Ethiopian government’s caution is not entirely out of place.

However, there are documented benefits for poor countries as well. Arguments in favour range from better economies of scale and supervision, more advanced technology, greater perception of safety by depositors, and lower corruption.[34] Of course, with regards to corruption, there have been cases lately about the susceptibility of foreign banks too. But in general, these are the exceptions and not the norm. “Several studies find that foreign banks in lower income countries (LICs) lend predominantly to the safer and more transparent customers, such as multinational corporations, large domestic firms, or the government.”[35] This remains largely the case. And when the specific case of African countries is explored, other studies still find that to be the case. Still, it is argued local banks become more efficient from copying the practices of their foreign competitors; by the adoption of better technology and banking practices, for instance. So, the Ethiopian case, when opened up, is not likely to be any different.

The author, Dr Rafiq Raji, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies

[1] Ethiopia opens up telecoms, airline to private, foreign investors (Reuters, Jun 2018)

[2] Ethiopia opens up telecoms, airline to private, foreign investors (Reuters, Jun 2018)

[3] Ethiopia plans to split telecoms monopoly, sell stakes gradually (Bloomberg, Jun 2018)

[4] Ethiopia launches mobile money schemes to extend banking reach (Reuters, Feb 2015)

[5] Visa pushes for more access to barely-tapped Ethiopia (Reuters, May 2014)

[6] Ethiopia eyes bond trading in cautious capital markets opening (Reuters, Jun 2015)

[7] Ethiopia appoints new central bank governor (Reuters, Jun 2018)

[8] Ethiopia relaxes entry rules for foreign banks (African Markets, Apr 2016)

[9] European Investment Bank opens office in Ethiopia (Reuters, Jul 2015)

[10] South Africa’s Standard Bank opens office in Ethiopia

[11] European Investment Bank opens office in Ethiopia (Reuters, Jul 2015)

[12] Turkey’s public lender Ziraat Bank to become the first foreign bank of Ethiopia (Daily Sabah, Apr 2015)

[13] Foreign banks warm-up as Ethiopia signals opening the market (Ethiopian Bankers Association, Jan 2015)

[14] Ethiopia’s new prime minister wants peace and privatisation (The Economist, Jun 2018)

[15] China scales back investment in Ethiopia (Financial Times, Jun 2018)

[16] Ethiopia not ready for foreign investment in telecoms, banking: president (Reuters, Apr 2018)

[17] Ethiopia bets on clothes to fashion industrial future (Reuters, Nov 2017)

[18] Ethiopian businesses disappointed by new PM’s economic stance (Reuters, Apr 2018)

[19] Ethiopian businesses disappointed by new PM’s economic stance (Reuters, Apr 2018)

[20] Ethiopian businesses disappointed by new PM’s economic stance (Reuters, Apr 2018)

[21] UAE to give Ethiopia $3 billion in aid and investments (Reuters, Jun 2018)

[22] Kenya’s Biggest Bank says Ethiopia is ready for ‘take-off’ (Bloomberg, Jun 2018)

[23] Banks (NBE)

[24] Insurers (NBE)

[25] Financial Inclusion: An overview (World Bank)

[26] Finacial Inclusion: An overview (World Bank)

[27] Bob Diamond says Africa faces challenges as global banks pull out (CNBC, May 2016)

[28] International banks ramp up presence in Africa (Financial Times, Jan 2012)

[29] JP Morgan plans expansion into Ghana and Kenya (Reuters, Jan 2018)

[30] International banks ramp up presence in Africa (Financial Times, Jan 2012)

[31] International banks ramp up presence in Africa (Financial Times, Jan 2012)

[32] International banks ramp up presence in Africa (Financial Times, Jan 2012)

[33] Foreign banks in poor countries: Theory and evidence (IMF, Jan 2006)

[34] Foreign banks in poor countries: Theory and evidence (IMF, Jan 2006)

[35] Foreign banks in poor countries: Theory and evidence (IMF, Jan 2006)

Nigeria – Quantitative easing by stealth

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In late September, Godwin Emefiele, Nigeria’s central bank governor, disagreed with assertions by outspoken and outgoing monetary policy committee (MPC) member, Doyin Salami, that the apex bank was overfunding the government. In his personal statement for the 24-25 July MPC meeting, Dr Salami challenged the somewhat furtive quantitative easing stance of the Central Bank of Nigeria (CBN), highlighting the sharp rise in the apex bank’s financing of the government’s fiscal deficit. Specifically, since December 2016, the government’s borrowing from the central bank increased twentyfolds to N814 billion, dwarfing a marginal 0.4 percent rise in lending to commercial banks. Others include a 30 percent rise in the central bank’s purchase of treasury bills, to the tune of N454 billion, a 5 percent increase in government overdraft to N2.8 trillion and an increase in the ‘mirror account’to N1.5 trillion in April 2017 from just N3 billion in December 2016. Put simply, Dr Salami asserts the CBN has been providing “piggy bank” services to the central government. And it has been starving commercial banks of liquidity in tandem, raising the amount of reserves they must park with it.

After putting a positive spin on Dr Salami’s candour as evidence of the CBN’s independence, Mr Emefiele analogized the CBN’s supposed overfunding of the government as no more than a bank customer overdrawing on an account. He further argued that whatever funding the CBN provided the central government most certainly underwhelms the balance in the authorities’ revenue account at the bank, the so-called treasury single account (TSA), estimated to have a balance of more than N7 trillion in April. John Ashbourne, Africa economist at London-based Capital Economics, wonders about the overdraft analogy; “it may be normal in some countries for banks to automatically extend a limited amount of credit to private customers, but that isn’t how central banks usually treat governments.” Besides, even if government is expected to pay back on the overdraft it takes, what is the lag period? Is there a consistency? And is the CBN adequately compensated? And if the TSA is so reportedly buoyant, why does the government need an overdraft? More importantly, is the CBN constrained from performing its monetary policy functions consequently?

Be transparent
But is there anything particularly wrong with quantitative easing (QE)? That is, the creation of money by a central bank to buy assets. Not necessarily. This is also the view of Tajudeen Ibrahim, Head of Research at Chapel Hill Denham, a Lagos-based investment bank: “in my view, nothing is really wrong [with QE], but the economy is not feeling this type…as it is not supportive of private sector growth.” Typically, QE is aimed at spurring inflation, as is the case in America, Europe and Japan for instance, where inflation is very low. “But that certainly isn’t the situation in Nigeria, where above-target inflation is currently a big problem, Capital Economics’ Ashbourne opines. Irrespective of the objective, though, the least the CBN could do is be transparent about it. This is the sentiment shared by market participants. Mr Asbourne puts it rather succinctly: “This move into unconventional policy is a worrying sign, especially since it has not been communicated very well to the markets.” As yet, the CBN has not formally declared it is actively engaged in QE. The American experience is instructive. With a balance sheet of just under US$1 trillion in September 2008, the Fed doubled its assets to US$2.1 trillion in just 4 months on the back of QE. More than 8 years later, when the Fed may begin to unwind these assets, its balance sheet size is about US$4.5 trillion, more than quadruple the size at the start of the global financial crisis. But for the deft communications of the Janet Yellen-led American Federal Reserve, an imminent tapering would have jolted the markets. The increased transparency was informed by the market tumult that followed earlier miscommunication by former Fed chair Ben Bernanke (the so-called “taper tantrum”). If the CBN must adopt a policy with origins in America, the least it could do is also take lessons from their experience.

No good deed goes unpunished
It is not clear whether the CBN has a timeline for when it would discontinue granting the central government a blank cheque. Besides, the jury is still out on QE; it is too early to tell whether it is a viable monetary policy tool. Since clearly, the CBN is printing money to fund the government, it could be reasonably inferred that its hawkish stance may last for longer; albeit the market is currently pricing in a possible rate cut soon. There would likely also be inflationary effects. As the private sector is increasingly starved of credit, the QE policy would also weigh on growth. [Never mind that] “businesses have to borrow at significantly high interest rates on the back of this”, Chapel Hill Denham’s Ibrahim adds. More importantly, the policy works against the CBN’s goal of bringing down inflation. Besides, did it have a say in the matter? Because if all that happened was that the central government simply ordered it to print money, then the erosion of the CBN’s independence may be worse than earlier thought.

In light of the recent QE move by the CBN targeted towards large corporates, these earlier thoughts are pertinent. An edited version was published by African Business magazine in November 2017.

Is Africa prepared for the next global financial crisis?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Volatility is back in global financial markets. In early February, Denver-based American hedge fund, Ibex Investors, with just $350 million assets under management, made US$17.5 million on a US$200 thousand VIX wager, an 8,600% return. How come? It bought insurance to protect it when markets go haywire; a farfetched scenario at the time. But they eventually did; on 5 February. More than expected wage growth data in early February raised expectations that the American Federal Reserve would hike interest rates at a faster pace than earlier thought. Bond yields shot up consequently. Expectedly, equity markets took a hit; as the cheap debt hitherto fueling their rally was about to start getting dear. Higher inflation expectations were confirmed almost two weeks afterwards, when American inflation data for January came out at 2.1 percent, 20 basis points above the consensus estimate of 1.9 percent. A week later, hawkish Fed minutes confirmed the fears of market participants. Prior to the release of the minutes, the Fed led markets to believe there would probably be about three rate hikes in 2018. Afterwards, some economists began to suggest there could even be as much as five rate hikes. This is probably extreme. But such varying views, fears and sharp market reactions are evidence of what has been missing from the markets since global central banks starting flooding them with easy money in the aftermath of the 2007-08 global financial crisis: volatility.

In tandem with the Fed, the Bank of England is similarly on a tightening cycle. And the European Central Bank has already signalled monetary contraction could come as early as 2019, even as it has already started paring down its quantitative easing (QE) programme. The Bank of Japan has also started to reduce its asset purchases. Does that mean the end of easy money, though? Not really. At 1.5 percent, American money is still relatively cheap. And even in England, where consumer inflation (3 percent in January) is already above the much sought after 2 percent target of other global central banks, the BOE rate is just 0.5 percent. Emerging markets (EMs), which have been huge beneficiaries of QE, need to start preparing for a post-QE world, however. This is because as interest rates start to rise in advanced economies, as they already have, there is going to be an increasing opportunity cost to allocating capital to EMs. Even so, still attractive EM yields would continue to make the carry-trade too tempting to ignore. But the party will not last forever, surely. At some point, there would be a sharp market correction, as yields rise in response to tighter global monetary policy. When that time comes, emerging and frontier markets, particularly African ones, not already prepared might suffer damaging shocks.

Andrew Alli, president & chief executive of Lagos-based Africa Finance Corporation (AFC) highlights why African markets might be at risk: “Many African countries have run down their reserves and/or borrowed significantly since the financial crisis and, as such, don’t have as much “fiscal space” as they did prior to the last financial crisis. Also their macro positions – deficits/inflation etc – have worsened.” Wale Okunrinboye, fixed income and currency specialist at Ecobank, the pan-African bank, corroborates his view: “Reserve levels across most countries have declined markedly across board as fiscal and current account pressures increased reserve drawdowns across most oil exporters whose economies went into recession….[so] SSA economies at the present appear lightly equipped to deal with [another] global financial crisis.” This was not always the case. In the run-up to the [2008-9] global financial crisis, helped by [the] commodity price rally, [ample] FX reserve levels…alongside relatively low debt levels and high economic growth rates, helped [African] countries deploy countercyclical measures to temper spillover shocks, Ecobank’s Okunrinboye adds. Some African countries have been taking precautions, though. For instance, Kenya sought and secured a 2-year US$1.5 billion standby credit facility from the International Monetary Fund (IMF) in March 2016. It has not had cause to use it; that is, even as the prolonged presidential elections last year could have triggered a need to do so. For such arrangements to achieve their confidence-boosting utility, however, the respective authorities would have to be very transparent: there were revelations in February that the buffer had actually not been available to Kenyan authorities since June 2017. The IMF provided clarification to news agency Reuters in February on why it stopped the authorities’ access for that long: “the programme has not been discontinued but access was lost in mid-June because a review had not been completed”, said Jan Mikkelsen, the IMF representative for Kenya. Still, market participants might not consider such arrangements to be entirely iron-clad in the future.

Still limited exposure
As commodity prices have been rising, could squandered foreign exchange reserves accrete in time before any potential crisis? Mr Okunrinboye gives a comprehensive explanation: “Though [commodity] prices have rebounded, they remain at discounts to levels seen during the commodity super-cycle”. So, wide current account deficits still persist. “Furthermore, capital pressures lurk on the horizon, as a search for yield [which] drove heightened portfolio inflows to SSA capital markets, [caused] significant asset price inflation.” Thus, hurried hot money exits in the event of another global financial crisis are likely to fuel exchange rate pressures. “[And] following an expansion in debt levels [by African economies due to QE], fiscal leg-room appears narrow relative to the last GFC; even as elevated inflation has forced many of these economies into hawkish positions with little choice but to tighten [even more in the event of sudden] currency pressures.” [So, even as] a host of SSA economies are now entering into structural reform programs with the IMF, the overall sense is that they seem lightly prepared for another event of a similar scale.” Even so, it is not entirely improbable that they could come out again largely unscathed. According to AFC’s Alli, “Africa’s general lack of exposure to global trade flows (<3%)” is one reason why

(An edited version was published by African Business magazine in March 2018)

Reporter’s Notebook: At the Afreximbank annual meetings (#AfreximAM18)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In the week past, I was in Abuja for the annual meetings of the Cairo-based African Export-Import Bank (11-14 July.) Afreximbank was also celebrating its silver jubilee; it was established in 1993. It was a hectic four days. Even so, I still managed to do a few things outside of the meetings. To do so, I had to forego what turned out to be some good speeches or panel discussions, however. Otherwise, one would never get the time or the opportunity to do so; especially as with almost all events, the schedule is dynamic – as the presence of invited special guests are confirmed or not, for instance. Thankfully, there were more than a tad eminent personalities that graced the occasion. I wish Rwanda’s Paul Kagame and Ghana’s Nana Akufo-Addo were able to attend, though. But as the South African president, Cyril Ramaphosa, opened the meetings, it was just as well I guess.

Tweets matter
I was a little surprised by how relatively few participants live-tweeted the meetings. Monitoring the news and markets from my workstation in Lagos most of the time, I have found such generous tweets to be most helpful for following key international events; the IMF/World Bank meetings, for instance. Thus, I make it a point to do likewise whenever I attend one. And I did; to the extent I could. Since not everyone can attend these often exclusive events, tweets from participants tend to be much followed by those either not attending or cannot attend. I do not know if it is a deliberate refrain by Nigerian media practitioners, but there is a lot that is missed even for participants otherwise. For even if the entire event were to be filmed the entire time – as indeed this one was – and the videos readily available, it is doubtful anyone other than the video editors would have enough time to watch them all.

Ironically, people from these parts often bandy about aphorisms like “no man is an island” and so on; often to serve a selfish purpose. But the egalitarianism that is supposed to be the consequence of such a lesson is rarely put to action by most. The key question is what is the best way in media to be of service to as many people as possible in the most efficient way. Before the internet and social media, there were not that many options. Privileged journalists, analysts and the like, who hitherto were amongst the very few that could “let other people in” into these exclusive events wielded their power often to their benefit. With social media, that privilege is now available to anyone who wishes it.

Even so, I have observed a certain level of conservatism amongst some journalists from these parts. Not all of them. On the final day (14 July) of #AfreximAM18, as I sought a good position to get a good picture snap of the Nigerian president, Muhammadu Buhari, as he exited after his speech, it was the not so conservative few in the room that enabled me get a sense of what was happening inside the hall before. Why was I outside? I arrived late; deliberately. The only key event of interest to me that final day was the president’s speech. However, I thought, as is often the case in these parts, the VIP would arrive late. Mr Buhari was prompt. And in line with protocol, the doors were shut once he got inside. It was a pleasant surprise. “Nigerian time”, the deliberate tardiness of Nigerian VIPs has become such an institution that it is taken for granted. How did that come about? During the military era, and even now, secret service agents (or other security or private agents of VIPs) would survey a venue ahead of the arrival of their principals. This was done (and still is) for security reasons and social ones as well; if the event is not well-attended, the VIP might choose not to attend, for instance.

Threads for those interested
If you are interested in getting a good feel of the 4-day meetings, you could go to my Twitter handle (@DrRafiqRaji) or search these two hashtags together (“#RR #AfreximAM18”). In the thread, you will find slides from some very excellent presentations. You would certainly find the one on “Nigeria’s Trade & Investment Prospects” quite useful. Another, on the “Investment Prospects for ECOWAS under the AfCFTA”, is also quite rich. You might also want to check my live-tweets (#RR #AdebayoAdedeji”) of the memorial symposium held in Lagos on 7 July 2018 by the United Nations’ Economic Commission for Africa (UNECA) in honour of their former executive secretary, Prof. Adebayo Adedeji, who died recently. If God wills, I should do a reporter’s notebook on it in due course. But now, I have articles to write. Till next time.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays)

Regulating social media: Necessity or mischief?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Without the tweets, I wouldn’t be here”, American president Donald Trump told the Financial Times in early April. That the most powerful man in the world sees his Twitter account as his most powerful communication tool speaks to how much the world has changed. Media, news, and communications will never be the same again. Ordinarily a conservative bunch, African heads of state are moving with the times on this one. It is now normal for the continent’s big men to make policy pronouncements via social media. So yes, African leaders appreciate the power the platform wields. And the threat it poses to their often less than democratic rule. Incidentally, even the established democracies on the continent, South Africa, say, are becoming increasingly irritated by how real and imaginary opponents have been able to effectively make them more accountable through social media. Naturally, more than a few African governments want more control over it. But information technology is evolving so fast, and so easily within reach of the average individual, that having been so empowered, the average African cannot now be so easily fed with government propaganda like in the past. Access to alternative narratives is so pervasive that most African governments feel somewhat enervated. Knowledge and skills required to master internet tools are also within reach of most Africans. That is why programmers trained in Lagos could easily get hired by American software firms and those else where without even the slightest doubt about their competence.

Unsurprisingly, African authorities’ attempts at regulating social media and the wider internet have been met with quite innovative responses. Sooner than authorities block one means, numerous other means emerge. When Egyptian authorities shut down the internet in 2011 to restore order as nationwide protests (“January 25 Revolution”) halted almost all economic activities, the citizens found ways to circumvent them. They used proxy servers in place of domain name servers (DNS) blocked by the government. Since local internet service providers (ISPs) were bound to obey the government’s shutdown order, those who could make long-distance phone calls dialled up ISPs in other countries – the government could not possibly shut down all landline phone access without putting its own national security at risk surely. And in a show of solidarity, some foreign ISPs offered their services for free. Even so, some African governments remain undeterred.

Determined folks
In early March, South African state security minister David Mahlobo revealed the authorities were considering the regulation of social media. “There is a lot of peddling that is going on”, he asserted then about the medium. He was referring to increasing incidents of so-called “fake news” and other unseemly reputation-damaging activities of some social media influencers. But how is that to be curbed before the act with stymieing free speech? Besides, are current laws not encompassing enough to prosecute infractions by social media users and influencers? In a clear change of tact, Mr Mahlobo told the South African parliament later that month that his emphasis is on cybercrimes or crimes that the internet is used to facilitate like human trafficking, defamation, child pornography and so on. Put that way, the proposed Cyber Crime and Cyber Security Bill should pass easily. The potential downside is that the powers that the law would vest in the authorities could easily be used by them for less than noble means. At least, there would be a debate on the issue before the bill is passed. In some African countries, that would not be an option.

Authoritarian African regimes in Ethiopia, Cameroon, Gabon, Chad, Egypt, Zimbabwe, and elsewhere simply shut down the internet at will, especially ahead of elections or when anti-government protests are about. More recently, authorities in Cameroon shut down the internet in the English-speaking Southwest and Northwest provinces (residents of which have been engaged in protests against the government over what they consider official bias against them by a deliberately francophone system) of the country in March 2017, crippling activities in the technology start-ups hub city of Buea. These regimes might actually be a little bemused by all the fuss around the formal enactment of laws targeted at social media in more tolerant African countries. When Ethiopian authorities arrested the award-winning blogging group, “Zone 9 bloggers” – who were increasingly becoming effective critics of the government – in April 2014, they simply charged the six members they arrested with terrorism-related offences. The authorities’ heavyhandedness was widely condemned: In July 2015 and just three weeks ahead of then American president Barack Obama’s visit to Ethiopia, the bloggers were released and acquitted of all charges.

Much ado about nothing
Existing libel laws and regulations governing mainstream media could easily be applied to erring social media practitioners and users. Little wonder it is suspected that the real object of African authorities is to stifle free speech and dissent. This reasoning is not farfetched. Current administrations in Nigeria and Ghana came to power through the usage of social media tools to force transparency on opponents in government and also for their propaganda. Now in government, they realise the same tools could easily be used against them. Being intimately familiar with the power of social media tools, as they are beneficiaries themselves, naturally they seek to control it. But would they succeed? The official position of the Nigerian government is that there are no plans to regulate social media. This much was acknowledged by Nigeria’s information minister Lai Mohammed in November 2015: “We are not about to regulate or stultify the social media”, he said. Mr Mohammed advocates self-regulation instead.

At a gathering of the country’s top social media influencers that he summoned in the same month, Mr Mohammed urged caution on their part, however, saying “We’ll respect freedom of speech, but social media influencers must tread carefully”. And when the legislature proposed a bill to regulate social media in late 2015, the government was quick to resist the move. “The president won’t assent to any legislation that may be inconsistent with the constitution of Nigeria”, presidential spokesman Garba Shehu said in statement released to the press. Had it passed, the Frivolous Petitions Prohibition Bill proposed by Bala Ibn Na’allah, the deputy majority leader of the Nigerian Senate, would have been an unprecedented clampdown on free speech, a basic human right. The part targeted at social media users read as follows: “Where any person through text message, tweets, WhatsApp or through any social media posts any abusive statement knowing same to be false with intent to set the public against any person or group of persons, an institution of government or such other bodies established by law shall be guilty of an offence and upon conviction, shall be liable to an imprisonment for two years or a fine of N2,000,000.00 [US$6,557] or both fine and imprisonment”.

After vociferous protests by all and sundry, the Nigerian Senate eventually bowed to popular will in May 2016 and stopped further consideration of the bill, arguing most of its provisions were already covered by existing laws. And less than a year later, a court sentenced someone to nine months in prison for insulting a Nigerian state governor on social media. While this is proof that existing laws suffice to make social media users accountable, it is also points to potential abuse. Besides, African authorities have also wizened to the wisdom of prevention: it is better to prevent the damage from being done in the first place. So in addition to shutting down the internet when it suits governing authorities, they also employ their own armies of social media influencers, who not only scan social media for articles of interest, but immediately deploy counter-narratives to neutralise those deemed unfavourable. Perhaps then African governments with social media regulation laws in the works are simply trying not to waste a good opportunity.

(An edited version was published by New African magazine in May 2017)

Why is West Africa less attractive to foreign investors?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

How is it that West Africa only accounts for 5 percent of foreign direct investment (FDI) into the African continent? The World Bank so wondered in an article in July 2017. This is the region that includes the continent’s largest economy, Nigeria, with gross domestic product (GDP) of US$406 billion in 2016, about 29 percent of Sub-Saharan African output of US$1.4 trillion. For comparison, South Africa, the continent’s most advanced economy has a size of US$294 billion. Furthermore, the largest and most dynamic francophone African country, Ivory Coast, with a US$36 billion economy, is also West African. So why the scant foreign investor interest? To buttress the point further, take the following example. Jack Ma, Asia’s richest man, led a cohort of similarly deep pockets from the region to East Africa in July. His first stop was Kenya, an economy barely one-fifth of Nigeria. Mr Ma also visited Rwanda, a tiny landlocked neighbour to Kenya. If perhaps corruption, terrorism and the occasional rebellion in Nigeria and Ivory Coast are disturbing, what about Ghana? With an economy (US$43 billion) almost as large as Kenya, Ghana has a better democratic record and has proved to be one of the most stable African countries. And just as Nigeria struggles to deal with the Boko Haram terrorist group in its northeast, so does Kenya with Al-Shabaab. Additionally, political violence is more of a problem in Kenya than it is in Nigeria.

It begs the question: Why would Mr Ma and his 38 billionaire friends find such relatively smaller African countries more attractive to larger coastal countries with such cosmopolitan cities like Lagos and Abidjan? The reasons are not farfetched. The World Bank asserts cumbersome administrative procedures and corruption at the ports hinder the speedy clearance of goods, for example. These apply to most African countries, though. It attributes access to finance as well. This is probably not as significant, though, because foreign investors are expected to bring their own capital. But if a country’s exchange rate policy is controlled and not transparent, this can be stymied. Incidentally, East African countries have been more reliable in this regard, allowing their currencies to trade without much interference and not hindering the free flow of capital in and out of their jurisdicitions, even during crisis periods. This has not been historically the case in West Africa, especially Nigeria, which until recently not only rationed hard currency but blocked the repatriation of capital, causing great losses to foreign investors. So myriad bottlenecks around doing business in most West African countries are worse than they are in East Africa. Little wonder the World Bank ranks Rwanda and Kenya 56th and 92nd out of 190 countries respectively in its latest Doing Business ranking. Ghana and Nigeria are ranked 108th and 169threspectively. Even though corruption underpines the relatively more difficult business conditions in West African countries, it is not likely why they are less attractive investment destinations, however. Kenya is perceived to be more corrupt than Nigeria, for instance. Infact, Transparency Internationalranks the largest East African economy 145th out of 176 countries in its 2016 corruption perception index, with Nigeria more favourably ranked at 136th.

That East African countries are more economically integrated may be why though. Because in contrast, West African countries under the aegis of the Economic Community of West African States (ECOWAS) have been more successful at political integration than economic cohesion. A more innovative streak is also a factor, especially in regard of information technology; albeit West African countries like Ghana, Senegal and Nigeria are increasingly demonstrating technological progress as well. Facebook’s chief executive, Mark Zuckerberg, visited Nigeria in August 2016, for instance. East Africa’s strategic location at the horn of Africa is also an attraction. China recently opened it first African military base in Djibouti, joining earlier military complexes of the Americans and others. So what can West African governments do to attract more FDI? They must make doing business easier certainly. The World Bank is helping via a European Union funded 4-year “Improved Business and Investment Climate in West Africa Project”. An ECOWAS Investment Climate Scorecard, it is hoped would engender quicker progress towards integration than the globally oriented Doing Businessranking, say, which though African countries can use to see how they are doing relative to each other, is not as sharp a tracking tool. With patronage-based politics continuing to be tremendously crucial to the stability of most West African countries, however, there is not much political will towards economic integration. Move too quickly and they might have bigger problems than just being difficult to do business in.

An edited version of these thoughts was published in my Forbes Africa magazine column in October 2017. Also published in my BusinessDay Nigeria newspaper column today (Tuesdays).

African state airlines: Necessity or folly?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In May 2017, the Nigerian government announced plans to set up a national airline. Considering the country’s chequered history with such ventures, more than a tad eyebrows were raised. The last time an attempt was made at setting up a national airline, the Nigerian government entered into an arrangement with Virgin Atlantic, a British airline. It did not end well. And if the objective was to restore the national pride that supposedly comes with a national carrier, that too failed. The botched airline, then named “Virgin Nigeria” was more “Virgin” than it was “Nigeria”; in name, that is. The issues that led to the Richard Branson – led Virgin Group to finally leave Nigeria are more complicated. They were literally kicked out. When Nigeria had a proper national airline, it was called “Nigerian Airways” and yes, it was a source of pride; for a while. It is a little disturbing that while African countries like Ethiopia, Kenya and South Africa have since then been able to run airlines that by and large meet the mark internationally, Nigeria has floundered in this regard ever since Nigeria Airways ceased to exist officially in 2003 (It stopped major operations years before). Nigeria’s President Muhammadu Buhari seemed determined to forge ahead regardless; especially now that he seeks re-election, at campaigns of which he would have to account for earlier promises, one of which is to set up a national airline. The original plan was to merge a couple of private airlines, which due to insolvency, had been bailed out by the state’s “bad bank” and thus effectively owned by the goverment. There was a change of plans, it seems. Instead, the Nigerian government appointed international advisers for the setting up of a brand new airline in May 2017; a consortium led by Lufthansa. In early February, it emerged Lufthansa’s terms might have been a little onerous for the governmment. The terms, which included a 75 percent upfront payment of costs in Euros to be domiciled in an internatinal bank, suggest Lufthansa took a few lessons from the nation’s not too stellar record. As both parties could not agree, the Nigerian government appointed Airline Management Group in Lufthansa’s stead. With elections due in about a year and the government in full election mode, how much progress would be made thenceforth is doubtful. And should the Buhari administration fail to get re-elected, it is not unlikely that the idea might be jettisoned all together by a new one.

Corruption, cost-cutting, little or no profit
There is a consistency about the causes of the sad narratives of state-owned African airlines: corruption. Whether it is Kenya Airways, South African Airways, Air Zimbabwe, to mention a few, the wreckage they have become can be traced to fraud, patronage and almost maniacal mismanagement. And to repair the damage, the modus operandi is almost always the same: cost-cutting. Just in April, Sudan Airways announced plans to cut 80 percent of its staff. It had little choice; it does not operate any of its planes currently. Sudan Airways’ troubles are unique, though, having been instigated by international sanctions on the Sudanese government. With hopes up that America would eventually delist Sudan from its list of state sponsors of terror, much needed financing might come about in due course to help with a direly needed turnaround. It is a little surprising therefore that African governments remain determined to either continue managing or set up national airlines; even as examples clearly abound about the difficulties of managing one. John Ashbourne, Africa economist at London-based Capital Economics provides some perspective: “For many countries, this is largely a political decision by leaders who see successful flag carriers as a sign of status.” Whether it is Kenya Airways, South African Airways, Air Zimbabwe, or Sudan Airways, the tales of woes are the same. They are not making enough money to cover their costs, some are alltogether insolvent, and others like the South African one have been weighing overly on state treasuries. Kenya Airways, which made a $251 million loss in its most recent 2016/17 financial year and negative equity of 45 billion shillings, had to be rescued by the Kenyan government in November 2017. The resultant restructuring of the airline’s debt upped the equity stake of the government but inevitably diluted the holdings of existing shareholders. It would take at least 10 years for the new management of the airline to clear the airline’s indebtedness; at least that is the period the government’s guarantee covers. Now the priority of Kenya Airways is not so much about making profit as it is about cutting costs to squeeze as much cashflow for servicing its debt.

The story is no different for South African Airways, the continent’s second largest airline. After years of setbacks under the previous Jacob Zuma adminstration, the South Africa’s state airline finally unvieled a turnaround strategy in March 2018. Cost efficiency is the goal as well. Loss-making since 2011, with debt guaranteed by the state to the tune of $1.7 billion, SAA epitomises all that could go wrong when a government manages an airline. Now with new management, there is hope that its fortunes might be turned around; probably by 2023. Why not just sell it, though? There are suggestions flying around in government circles about a potential 49 percent stake sale. But it is believed the government desires that when that happens, if it happens, it should be a better-run and more valuable SAA that it bequeaths to a potential equity partner. An example of the sentimental attachment to the idea of a national airline is the recent purchase of Boeing planes by the cash-strapped Zimbabwean government. Only just emerging from the clutches of longtime ruler Robert Mugabe, and in dire need of foreign exchange to revive an economy long in the doldrums, Zimbabwean authorities bought four Boeing 777 planes for $70 million in April with plans to purchase even more. Although purchased via a special purpose vehicle and not yet transferred to the hugely indebted and floundering state-owned Air Zimbabwe, it is quite astonishing that such a venture would be a priority of a government that most recently ran a budget deficit of $1.8 billion (11.2 percent of 2017 GDP). There are speculations that the new planes would eventually be part of the fleet of new state-owned airline in the place of Air Zimbabwe, which with debt of more than $300 million is expected to be dissolved or privatized.

Bright spot
There is at least one examplar in the African state airline industry. Ethiopian Airlines is virtually a miracle. With revenue of $2.43 billion from carrying 7.6 million passengers in 2015/16, Ethiopian is Africa’s largest airline by revenue. It is also the largest African airline by profit, according to the International Air Transport Association (IATA). And its growth figures have been through the roof. In the year highlighted, its net profit grew by 70 percent. Imagine that? In a continent where its peers are making losses upon losses or are simply insolvent. Unsurprisingly, it is being called upon to help out elsewhere. In January, it signed an agreement with the Zambian government to, like in the Nigerian case, help revive Zambia Airways, a national carrier that was run aground in 1994, more than 20 years ago. This is just a latest addition to a burgeoning portfolio. Ethiopian Airlines already manages ASKY, a West African airline, and Malawi Airlines. Is Ethiopian’s success reason to be hopeful? “Ethiopian’s success does suggest that a few firms will find their niche; but Africa certainly doesn’t need 54 competing national airlines linking their various capitals to London, Paris, and Johannesburg”, says Capital Economics’ Ashbourne. Some African countries, smaller ones, say, would have to give up on their big dreams, however. Mr Ashbourne suggests “[they] should either merge their efforts, or focus on building regional networks. There is a lot of opportunity to improve intra-African links, for example.” 

(An edited version was published by African Business magazine in May 2018)

Can Lake Chad be saved?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Most Africans probably sometimes just wonder what the fuss about climate change is all about. The planet is getting hotter. So what? What difference does it make to their daily lives? It has always been hot here anyway. What difference would a one to two degrees increase in the temperature make to a people mostly preoccupied with getting their daily bread. Mention the Paris Accord, and some sentiments would probably be jealousy towards the African officials who got to participate in the negotiations while relaxing in the fabled city of love, as opposed to delight at the many laudable measures towards saving the planet in the agreement. But if you start the conversation from the increasing examples of the palpable negative effects of climate change like drought, floods, famine, and so on, on the continent, everyone’s antenna would probably suddenly shoot up.

A striking example is the drying up of Lake Chad in West Africa; which has had debilitating effects on the bordering countries: Cameroon, Central African Republic, Chad, Niger, and Nigeria and a few further afield like Libya, Sudan and Algeria. Erstwhile fishermen have had to make do with less or simply change their vocation. Farmers who relied on the lake for natural irrigation of their farms have also suffered ill fortune. Expectedly, as misery tends to beget more misery, criminals and terrorists have stepped in to fill the vacuum. The costs to lives and livelihoods of the more than 90 percent depletion of the Lake Chad over the past five decades is almost unimaginable. But not until the insecurity it engendered began to make life difficult in much distant lands from the banks of the lake did the authorities in the environs begin to take proper notice. Not that action to save the lake was not taken hitherto. After all, the Lake Chad Basin Commission was established in 1964, more than five decades ago. But with myriad killings from terrorist groups in Nigeria, Niger and elsewhere going on unabated, the authorities had little choice, it seems, but to begin to address not just the symptoms of growing insecurity in their domains but the root causes as well.

Most recently, the efforts towards saving Lake Chad is encapsulated in “The Abuja Declaration” adopted at the International Conference on Lake Chad in late February in the Nigerian capital, Abuja. Highlights of The Abuja Declaration revolve around restoration of the lake, resolution of the security issues emanating from its drying up, and funding for the initiatives towards its restoration. The most important and perhaps the most difficult is the “Inter Basin Water Transfer” (IBWT) project for bringing the lake back to its earlier much buoyant levels. Incidentally, the $14.5 billion IBWT project was first mooted in the 1960s. Considering how little progress has been made since then speaks to the difficulty of the endeavour. The plan entails diverting water from the Congo River more than a thousand kilometres away into Chari River, which feeds Lake Chad. Transferring water from the Congo-Oubangui-Sangha Basin to the Lake Chad Basin would also have benefits for the communities in between. The feeder dam to be built in Palambo in the Central African Republic (CAR) is expected to generate at least 700MW of electricity, for instance. The dredging of the Oubangui River in the CAR would also allow ships to transport goods from what is ordinarily a landlocked country. And expectedly, irrigation, drought mitigation and desertification control would be added benefits.

It begs the question then of how the longsuffering project would be able to break the seeming jinx on it this time around. On the face of it, the right measures are being put in place. A $50 billion Lake Chad Fund under the auspices of the African Development Bank is refreshingly assuring, for instance. Still, the participating countries have strained finances. With their authorities barely able to address burgeoning infrastructural deficits inland, the Lake Chad issue may become another African project that is never lacking in passionate backers with shallow pockets. Still, one should be hopeful.

An edited version of these thoughts was published in my Forbes Africa magazine column in June 2018

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