Category Archives: Tweets

Revamped African ports need good roads & railways to boost trade

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

According to PwC, a consultancy, it is more expensive to ship a container to and from Africa than for other continents. Small shipment sizes are one reason why. Dwell times are another. Some of these inefficiences are due to inadequate infrastructural and human capacity; well-run African ports outside of South Africa tend to be those concessioned to foreign operators. Were African ports to be more efficient, the cost of African goods exports and imports could be cut by more than half, research shows. Higher volumes per port could be a solution. Economies of scale via regional hub ports with shipping volumes of more than 2 million twenty-foot equivalent units (TEUs) per annum would reduce transport costs and make African goods more competitive. That is the thinking of PwC, at least, elaborated in a recent report. Shipments to West Africa, say, would go to one hub port, from where smaller ships and/or inland road and rail infrastructure would be used to transfer the containers to neighbouring countries. PwC believes these regional hub container ports are likely to be those in Durban (South Africa), Abidjan (Ivory Coast) and Mombasa (Kenya). Currently, only the Port of Durban, which handles more than 2.5 million TEUs, qualifies as one. There would eventually be other regional hub port contenders, though.

The Chinese factor
There has been increased invesments in African ports lately; about 10 percent of the global total (based on estimates by PwC). Most are to improve existing port facilities in addition to better managing them via concessions. There are also a few planned greenfield investments. Considering the continent’s contribution to global trade growth has been below 1 percent over the past three decades, the increased interest seems a little counterintuitive. But that would hardly change if what are mostly inefficient African ports are not revamped. African governments now see the need, certainly. Not that they did not hitherto. With so many demands on the public purse, supposedly self-funding ports could not have been a priority. So what changed? John Ashbourne, Africa economist at London-based Capital Economics, a consultancy, suggests reasons why: “There are a combination of factors at work; but a key one is the large pool of Chinese capital that is targeting infrastructure programmes abroad. While France remains a dominant player in West Africa, a lot of the big schemes elsewhere (in Kenya, for example) are only possible due to Chinese involvement.” China, which is now the continent’s biggest trading partner, clearly sees how mutually beneficial it would be to help out.

In late March, Nigeria’s vice president Yemi Osinbajo flagged off the construction of the Lekki Deep Sea Port. When completed, it would be able to handle 1.5 million TEUs annually and as much as 4.7 million subsequently; eclipsing the 650,000 TEUs Tincan Island Apapa port with a channel draught of 13.5 metres. With an expected post-dredging draught of 16.5 metres, the Lekki Port’s channel would also be the deepest in the country; and perhaps the West African region. If all goes according to plan, it would rival that at Abidjan eventually; which is already doubling its capacity to 3 million TEUs from about 1.2 million currently. The $962 million worth of upgrades to the Port of Abidjan by a Chinese construction firm, which began in October 2015, includes a second container terminal and a widening of the port’s main channel. And in east Africa, the Dar-es-Salam and Doraleh ports in Tanzania and Djibouti respectively, are already cannibalising the traffic of the Kenyan port in Mombasa, with Ugandan and Rwandan bound goods increasingly transiting via Dar-es-Salam and Ethiopian ones almost exclusively moved via the port at Doraleh. The capacity of the port at Dar-es-Salam is also being doubled and should be able to handle 28 million tonnes of cargo a year by 2020; when new capacity in Abidjan and Lagos are expected to come on stream. The Chinese are also the ones doing the construction. Incidentally, the Chinese are also the ones doing the deepening and expansion of the port at Walvis Bay in Namibia, which President Hage Geingob confirmed in his April state of the nation address, would be completed in 2019. Apart from the Lekki Port, other greenfield projects are being embarked on. In March, Sudan and Qatar agreed a $4 billion concession to develop the Red Sea port of Suakin in Sudan; though this could potentially be at conflict with an earlier deal with Turkey for the same port in addition to building a naval dock. Similarly in March, about a month after losing its Djibouti Doraleh container terminal port concession, DP World, a Dubai-headquartered ports operator, won a 30-year joint venture management and development concession for a new port at Banana creek in the Bas-Congo province of the Democratic Republic of Congo (DRC) that is expected to cost at least $1 billion to construct. The rationale is the same as the Lekki Deep Port. The DRC’s current main port is too shallow to handle bigger vessels. The new investments are providing model African port operators with new opportunities. For example, South Africa’s Transnet aims to operate three berths at the new port being constructed in Lamu, Kenya and is also looking at a deal with ports authorities in Benin Republic in west Africa. At least $2 billion in port investments are also planned in Ivory Coast, Mozambique, and Tanzania; some of which would be accompanied by new railways and roads.

More ports, more trade?
Is there a risk of overcapacity then? After all, some ports are already cannibalising each other’s traffic. It would be short-sighted to think so. According to the IMF in its April World Economic Outlook report, China is expected to grow at about 6 percent over the next half a decade, and thus remain the main driver of global growth; estimated at about 4 percent in the period. In the same vein, Africa’s projected economic growth of about 4 percent over the next five years is expected to remain driven in part by international trade; more of which it now does with China. In its most recent update, the IMF notes a strong recovery in global trade, which grew by an estimated 4.9 percent in 2017. And although a potential trade war between America and China is a cause for concern, and could potentially dampen the resurgent optimism, recent developments like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership by countries that account for 15 percent of global trade and the African Continental Free Trade Area (AfCFTA) agreement, point to likely higher trade growth in the future. So, better-run African ports, with greater capacity, and indeed new ones, would potentially position the continent to be a more active participant in global trade. PwC explains the logic in its report this way: “increased volumes of trade and more productive and attractive ports will accelerate changes in global shipping routes serving Africa…[and] will lead to increased integration with global shipping and trade routes,…reducing transit times and reducing the unit cost of transport to and from the continent”. But is it that simple? Not entirely. Capital Economics’ Ashbourne assesses the matter this way: “Improved infrastructure will help to boost trade [but] the real problem is often “last mile” links. [So] it doesn’t matter if the port functions perfectly if the rural roads that lead to the inland areas don’t work properly.”Infrastructure for trade, whether they are ports, roads or railways, have to be integrated to make a difference.

An edited version of this article was published by African Business magazine in May 2018

An investment case for African public water infrastructure

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Only water can be so available and yet so out of reach. The lack of access to clean drinking water has been adjudged one of the greatest causes of poverty in African countries. Water-related illnesses are about 80 percent of all ailments in developing countries. According to the World Health Organisation (WHO), only 16 percent of Africans have access to safe pipe-borne water. For one, the 40 billion hours per year invested in collecting water consequently could be put to better economic use. According to the International Water Management Institute, only 7 percent of the total cultivated area of 183 million hectares in sub-Saharan Africa is irrigated. And globally, water is not being replenished as much as it is being used, according to a study by American space agency, NASA. And most of what is being used is for agricultural production, about 70 percent. Thus, short of drastic measures, water could be short in the not too distant future; for agriculture and indeed other purposes. The potential consequences are not just that food may be short, but that wars may be more frequent. To feed a world population expected to breach 9 billion over the next 3 decades, food production must grow by at least 70 percent, studies show. Incidentally, more than half of the world’s uncultivated arable land is in Africa. For that land to become as agriculturally productive as would be needed, it could not just be rain-fed. But even the water that would potentially be used to irrigate it must be made to do much more.

Climate change effects also mean whatever little that is available is fast depleting. Water scarcity is believed to already beleaguer about two-thirds of the world’s population. Nowhere is perhaps the dangers so palpable than on the African continent. Recent droughts in a number of African countries – like Kenya, Botswana, Namibia, Zambia and so on – made writ large their vulnerabilities, with food and power supply constrained significantly consequently. Incidentally, the elements coincided with shocks in the international commodity market. As some of them are also resource-rich countries, it was a double whammy of sorts. But they could easily be unscathed by these potential shocks, if they weaned themselves of their dependence on weather-vulnerable sources for their electricity and food. More of Africa’s agricultural production could be irrigated certainly. That is not to say, irrigation is not already gaining ground in a couple of African countries. For instance, data by the Internationl Food Policy Research Institutue (IFPRI) show irrigated land in Tanzania is about 150,000 hectares currently, more than four times the 33,500 hectares that were seven years ago. But this pales in comparison to 29 million hectares more that remain to be irrigated in that country.

Do more with less
Regardless, whether in African countries or elsewhere, water usage could be better managed. Google, an American internet company, together with the United Nations’ Food and Agriculture Organisation (FAO) have developed an open-access database called WaPOR, which relies on satellite data to show how much water is being used or consumed in any part of the world. “Water use continues to surge at the same time that climate change – with increasing droughts and reducing water availability – is altering and reducing water for agriculture,” Maria Helena Semedo, FAO’s deputy director-general, told Reuters in April. The information WaPOR keeps is supposed to help governments and farmers better efficiently manage water. Better crop yields and more optimal crop choices are expected benefits. Whatever water is available could be better utilized, though. There is a lot of wastage currently. New ways have emerged that would not only make farmers use half of the water they currently use but to also double their crop yields. The problem is that a viable and sustainable business model is needed. Past ones have proved to be inefficient or outright failures, discouraging development organisations and financiers.

Make water investing attractive
Water infrastructure has not enjoyed as much attention in most African countries, unlike power, roads and so on. Bizarrely, sachet and bottled water plants are ubiquitous. Why is this the case? “The availability and quality of tap water in many African countries is not always reliable and therefore bottled water has become a very large and very profitable business for private investors especially since the required investment is relatively small with potentially large addressable markets with a growing middle class across the continent,” says Zemedeneh Negatu, global chairman of Fairfax Africa Fund, in Virginia, USA. Clearly, the amount Africans spend on sachet and bottled water suggest they would be able to afford to pay for pipe-borne water comfortably. With most Africans expected to live in cities in the near future and at least ten of the world’s largest cities expected to be African by 2100, the accompanying need for a robust water infrastructure is an attractive investment opportunity. So there is a strong economic case. Even so, private investors shy away from investing in public water infrastructure. “Private investment in “public tap water” has been very limited because the investment required is big, and unlike bottled water, the selling price is heavily regulated since it is considered public service. Therefore, the profit margins and IRRs are less attractive compared to bottled water,”says Fairfax’s Negatu. Besides, ensuring that the regulated water rates are paid as and when due can be very difficult. So to attract investors, “a strong sponsor or at least a strong and credible buyer of the water who is prepared to pay a decent market price [would be required],” says Andrew Alli, president and chief executive of Lagos-based Africa Finance Corporation, a major African infrastructure investor. And for the off-grid integrated water and power type infrastructure that smallholder farmers need, is there a viable financing model with scale to make it attractive to big ticket investors and yet nimble enough to make it affordable? For any such model, “you will need someone to intermediate the risk of the small holders at least initially [because] it is unlikely that people will invest the necessary capital on the back of the smallholders’ credit risk,” AFC’s Alli concludes(This article was first published by Africa investor magazine in late 2017)

Also published in my BusinessDay Nigeria newspaper column (Tuesdays)

Water is the new black gold

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

“It’s clear that in Africa and globally we need to be working towards doing more with less water” – Kate Brauman, Lead Scientist, Global Water Initiative (GWI), Institute on the Environment, University of Minnesota

Negative water externalities
Insecurity in the Sahel, terrorist activities in the Lake Chad area, and frequent clashes between pastoralist Fulani cattle herders and sedentary farmers on grazing routes can be traced to a lack of water or little of it. Not that there used to be much water in the Sahel. But even the little that there was, has been depleted or long gone. The Lake Chad, one of Africa’s largest once, which straddles the borders of Nigeria, Niger, Cameroon and Chad, could easily be mistaken for a stream these days. It is not an exaggeration. More than 90 percent of the lake is gone. “The shrinking of Lake Chad poses the greatest threat to peace, security and food security [for] the populations of the [countries in the] area”, says Verner Ayukegba, principal analyst for Sub-Saharan Africa economics and country risk at London-based IHS Markit, a research firm. “It is very likely, that the shrinking is directly linked to the economic hardship in the region which in turn provided a fertile ground for the Boko Haram insurgency. Being unable to continue fishing and farming activities supported by the lake, local populations on the shores have had to move to urban areas…for opportunities which remain scarce. Countering the shrinking of the lake or at least addressing the effects…will be at the centre of dealing with the Boko Haram insurgency long term.” Thankfully, efforts are afoot to replenish the Lake Chad.

There are competing needs for water elsewhere. Lately, Egypt has become increasingly nervous about Ethiopia’s big dam on the River Nile. Ordinarily, Ethiopia, being an upstream country on the river, is strategically located to determine or affect the flow of water downstream to Egypt and Sudan. Naturally, the Grand Ethiopian Renaissance Dam (GERD) has become a source of tensions; particularly with Egypt, which is historically, emotionally, and existentially attached to the River Nile. Sudan, on the other hand, is not as antsy. It is happy, in fact. The GERD would be helpful in stopping potential floods when the Nile overflows its banks. For that favour, it would also get cheap electricity once the dam starts generating electricity. Shouldn’t Egypt be happy as well? It worries about losing control over something so crucial to its national identity and existence. With water increasingly scarce, its sovereign pride makes its leaders wonder about their vulnerability to the whims and caprices of the Ethiopian regime. Say, a word or action by an Egyptian official rubs off in a bad way, what is to stop the Ethiopian government from cutting Egypt off? Well, nothing. Understandably, some worry about the likelihood of conflict. The Egyptians could bomb the dam, for instance. This has been assumeed for a long time now. There is, however, limited probability that this would ever happen.

Restraint, efficiency and creativity
But there is a different sort of water trouble elsewhere; down south in fact. Cape Town could run out of water in another year or so. That is, if concrete action is not taken to tackle the crisis. And there is good reason for concern. “Investigation on government’s effectiveness in handling the crisis effectively exposes politics, not rainfall, at the heart of the problem”, says Ibrahim Sagna, director and head of advisory and capital markets at Cairo-based African Export-Import Bank. Rising debt, mismanagement and corruption at the government’s department for water and sanitation hampered drought relief funding, for instance, according to South African Water Caucus, a civil society group. Day zero, the nomenclature the authorities have coined for the ominous day that the taps could run dry, has been shifting depending on attitudes of Capetonians. Now more conscious of saving water, when there has been an appreciable water conservation effort, day zero has been pushed back. When behaviour has not been responsible, it has been brought forward. The point is a water crisis is imminent. Without concrete action, day zero will come eventually; in Cape Town and/or elsewhere. Still, how is a city like Cape Town, awash with water, without water? What about all that ocean surrounding it? Yes, it is salty water. To make it palatable and drinkable, it has to be desalinated; an expensive endeavour. Should that be an excuse, though? Israel, another water-scarce country, is already adept at desalinating the abundant salty water on its shores. In other words, the technology exists and can be used cost-efficiently. For instance, water infrastructure could be redesigned to distinguish between that needed for drinking and cooking and those for laundry, toilet, and so on. Some businesses in Cape Town, hotels especially, are not waiting for fate or the government. Some already desalinate what is really abundant sea water. Others have deployed interesting technologies like one that harvests air to produce drinking water. Imagine that? And a more water conscious society is certainly beneficial in the long run. Since even though the ocean is abundant, the money for refining it for use is not. Dr Brauman of GWI gives another example. “There is appropriate concern in Malawi about water and energy, as the sole hydroelectric facility and really only source of domestic electricity production is on the Shire river and threatened by falling lake levels.” For Malawi and indeed other countries with similar problems but abundant alternative power sources like year-round sunlight, she advises them “to move away from centralized (not to mention water-depenedent) energy production all together and focus on distributed solar energy.”

Predominantly rain-fed, recent droughts in eastern and southern Africa weighed significantly on agriculture and power supply. So how should African countries better prepare to mitigate or prevent these negative effects in the future? For food supply, irrigation would be necessary, certainly. But where will the water come from? “The focus should be on ensuring that irrigation water is used as productively as possible – improving “crop per drop” of agriculture”, says Dr Brauman. “Water is effectively wasted if yields are low because of too little fertilizer or crop disease. That means instead of focusing just on water, we would be better rewarded by focusing on integrated farm management including fertilizer and pest management as appropriate”, she adds. The water scientist has other creative ideas: “To use water effectively, it needs to be clean enough to  use. One really cheap thing that people have done with water for a long, long time is [to] use it for waste disposal. There’s actually an old engineering adage, “the solution to pollution is dilution” – and that was really true when there weren’t many people! But now it’s a lot cheaper to keep water clean than to clean it once it’s dirty, so we need to build systems that not only use less water but keep it cleaner so it can be re-used later.” She goes further: “one idea that I think is really intriguing but I haven’t seen developed relies on flexibility in water use. If we go back to the idea of thinking about the end goals, I think it’s reasonable to assume that farmers want to be able to feed their families and make a living, not that they specifically want irrigation water. So what if there was a system in place to pay farmers to fallow their land during droughts and not use some of the water? I also think developing ways to use groundwater strategically is important. It turns out that there’s a lot of untapped groundwater in Africa, and much of it is a situation similar to the central US where the groundwater is very old and not being recharged. Could that water resource be used, but only in times of drought? Historically, once people put wells in they use them all the time, whether there’s a drought or not (to grow a crop during the dry season, for example). Perhaps there’s some kind of institutional constraint that could come along with physical access to the water to make sure it’s used wisely.”

So what models are there to make irrigation accessible, affordable and available to African farmers? Again GWI’s Brauman has some ideas. “There’s been lots of great work on what’s sometimes called “green water” harvesting – capturing and storing rainfall on farms by, for example, building small dams on gulches. What I think is critical is not trying to grow crops in places where it’s totally impossible without irrigation, but instead using affordable, small-scale irrigation to help ensure that a dry spell during the growing season doesn’t cause crop failure. There is hope. (An edited version of this article was first published by African Business magazine in April 2018)

What is the potential of financing African SMEs via crowdfunding?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji 

Ask someone for a large donation towards a cause and the person is likely to balk. If considerate, a polite plea to mull it for a while might be made. Ask for something smaller, akin to pocket change, there would probably not be much ado about it. That is the underlying wisdom behind crowdfunding. Network effects of the internet mean small donations from a vast number of people can amount to quite a lot. Now imagine if instead of a charitable course, the proposition is one of profit, naturally with some risk. There is the potential that there would be similarly many takers. But how is that any different from the normal stock or bond issuance process? Do interested investors not similarly take as many units of a share or bond sale as they want or can afford? And one unit of a stock or bond could be less than an American cent in some instances. Well, crowdfunding avoids the regulators and transcends borders. Of course, these supposed advantages also come with inherent risks. Even so, they provide an opportunity for small- and medium-sized enterprises (SMEs) to secure alternative sources of financing in otherwise very difficult environments; especially in African countries where SMEs constitute more than 90 percent of businesses, according to the International Finance Corporation (IFC). By another account, SMEs account for about 80 percent of employment in African countries. And top among their challenges is access to credit; which even when they are able to secure, is usually at exorbitant interest rates.

Just another name
Crowdfunding, a form of so-called “alternative debt” is just one of quite a few new approaches to financing SMEs. Asset-based finance is already widely used. Other approaches other than typical plain vanilla bank debt with such fancy titles like “hybrid instruments” and “equity instruments” are beginning to be used by SMEs as well; albeit still limitedly, according to a report by the Organisation for Economic Co-operation and Development (OECD). The distinction of crowdfunding is that it is mostly project-focused, as opposed to financing the entire business. Although still mostly debt financing, equity type financing is beginning to evolve. Whether it is via donations, reward or sponsorship, pre-selling or pre-ordering, lending or equity, not needing an intermediary other than the platform through which the financing is facilitated is a key attraction. And potential returns to backers need not be financial. For donations, nothing is expected in return, for instance; although this is usually more the forte of charitable organisations. For the reward or sponshorship type, an acknowledgement, service or token of appreciation suffices. As the name implies, investors who back a venture in the pre-selling or pre-ordering format sometimes expect no more than the product they backed before it gets to the mass market; and may be at a much lower price. In the lending format, it is the typical payment of interest and principal that one finds in other credit environments that prevails. Alternatively, the parties could agree to share revenue and thus partake in the risk of the venture. And the equity form is no more than the investors buying into the venture via shares.

Limited activity
Global crowdfunding financing was $34.4 billion in 2015, according to a 2016 report by Massolution; more than 70 percent of which was via lending. And how much of this went to Africa? A paltry $24.2 million; less than 1 percent. Most crowdfunding financing still takes place in North America ($17.25 bn) and Europe ($6.48bn); about 70 percent of the global total. Since only limited crowdfunding makes it to the African continent, what then is the potential for indigenous platforms? A sense of the potential of these would first have to be inferred from current savings in African countries of about 15 percent of GDP, according to the International Monetary Fund (IMF); which is not exactly ideal. What could probably be put to such ventures are increasingly destined for ponzi-type schemes that offer ridiculously high returns. That is not to say there is no potential at all. In Nigeria not too long ago, funds were successfully mobilized for the family of a deceased policeman’s family via crowdfunding. But if the object is a business venture, without the sentimentality of a supposed noble cause, how easy would it be to similarly mobilize funds? One’s observations suggest the potential is limited – for now. (An edited version of these thoughts were first published in my Forbes Africa magazine column in March 2018)

Also published in my BusinessDay Nigeria newspaper column (Tuesdays)

Developments in the African debt capital markets

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

There has been a flurry of new African dollar debt issuances thus far this year. A bunch were for refinancing existing issues. They almost all were also used to fund budgets. Some infrastructure-led ones have also been done. With as much as $15 billion in dollar debt issued by African sovereigns in 2018 to end-March, the appetite for high-yielding but increasingly risky African credit remains high. Ivory Coast blazed a trail by issuing the largest ever euro-denominated bond by an African country in mid-March. The 2-tranche €1.7 billion bond yielded 5.25% for the first 12-year note and 6.625% for the second 30-year note; the first such long-tenored for an African sovereign issuer. And the spread of the interest despite increasingly difficult market conditions is evidence there is probably going to be as much money chasing as much African debt that there is. Take the Ivory Coast case, American and European investors dominated the list of subscribers. Insurance companies and pension funds took at least 70 percent of the notes with banks taking meagre portions. Broader ex-China Asian interest in African credit is about to be tested. Ghana, which plans to issue $2.5 billion in new foreign debt this year, is looking to Asia. In April, before the end of which it plans to issue a $1 billion eurobond, its officials met Japanese investors to gauge their interest for a potential yen-denominated bond. Zimbabwe plans to tap the eurobond market before end-2018. Before then, it has to clear about $1.8 billion in arrears owed the African Development Bank and World Bank; which it has committed to doing by September. As it did not have the funds, it went in search of bridge financing from global banks in April.

More than meets the eye
Lately, there has been concerns about transparency. A number of African countries may not have been truthful about their total indebtedness, it has been found. Of course, this raises questions about their advisers whose jobs it is to ensure that whatever records are published are the correct ones. Even so, the onus of disclosure is primarily on the issuer. While hitherto, investors were just happy to get a slice of these issuances, there is increasing circumspection. Not that the yields do not more than compensate for the risk. But surely, a high yield is no good to any investor if the corpus is lost. With African sovereigns now perceived to perhaps have more debt than they let on, Zambia and the Republic of Congo lately, investors are asking more questions. This adverse development coincides with just the time that more money from developed economies is likely headed back home as interest rates become more attractive over there. 10-year US treasury notes could breach the 3 percent mark by end-2018; they were already yielding 2.8 percent in April. The concerns oft-raised about the potentially dire implications of tighter capital markets for African issuers is somewhat exaggerated, though. With almost $240 trillion in global debt outstanding, the borrowing needs of the just over $2 trillion African economy is minuscule. The last time it was discovered an African sovereign, Mozambique, that is, had hidden debt, a default followed and investors suffered losses from what was a painful and still ongoing restructuring. Although Mozambique is making some headway with some of its foreign creditors, others have not been as accommodating. In March, its main foreign creditors rejected the restructuring plans it presented on about $2 billion of debt it owes them. One of the plans included as much as a 50 percent haircut on accrued interest payments of as much as $700 million. In any case, the IMF says Mozambique is not likely going to be able to fulfill its foreign debt obligations for another five years, having not made payments due on them since 2017. Thankfully, it agreed restructuring terms on the $2 billion owed China and $177 million to India in March. Concerns about Zambia’s true debt load were raised in mid-April. And even after Zambian authorities showed budget documents to prove it had nothing to hide, markets remained sceptical. There are also suspicions about the liabilities of the Republic of Congo. Now, market participants wonder if there might not be others.

Antsy markets
Markets have become antsy lately. Tensions are rising in the Middle East, America is fighting a trade war with China and perhaps any other country that irks President Donald Trump, the Fed is raising interest rates, and other global central banks have either started tightening their monetary policy like the Bank of England, or signalled the paring down of extraordinary bond purchases called quantitative easing (QE) that flooded markets with easy money hitherto. Amidst such sharp changes in global markets, this is hardly the time for African sovereigns to have peculiar encumbrances. The institutions raising doubts about the actual amount of foreign debt in the books of Zambia are credible. Bank of America Merril Lynch and Nomura International are top global investment banks. Investors are taking heed. Almost momentarily after the revelations in mid-April, yields on Zambia dollar bonds rose by more than it ever did in at least a year. It would probably be among the worst performers of African eurobonds this year if the authorities are not able to demonstrate and convince market participants they have been honest all along. What is the prospect of this, anyway? History suggests they would likely not be able to refute the claims. Investors have probably moved on anyway. More importantly, or perhaps adversely, is that the level of disclosure that would be required for future African dollar debt issuances would be unprecedented.

What are the facts? Bank of America claims Zambia’s external debt increased by at least $10 billion from 2015; potentially adding the equivalent of about 30 percent of GDP to the country’s debt load over a 5-year time horizon. The authorities’ rebuttal is that Zambia’s total foreign indebtedness was about $1.3 billion less than the incremental level suggested by the American bank as at the end of 2017; still over 40 percent of GDP. In cases such as these, much store is put in the IMF; which tends to be able to probe deeper than advisers. It has asked the respective countries to provide details of their total indebtedness; especially those to commercial banks and in the case of commodity exporters, swap arrangements and so on. What these latest revelations portend is that investors may begin to ask for more compensation for what they are likely to now see as riskier exposures. The repayment risk adds to still disproportionate perception of political risk of African sovereigns in international debt capital markets. This is probably needless. African sovereigns are more politically stable today than they were years ago. And recent elections in Kenya, Liberia, and Sierra Leone – to mention a few – which all went into second rounds, with the extreme Kenyan case almost at breaking point, proved to be not as disruptive as feared. And with commodity prices recovering, the finances of commodity-dependent African countries are beginning to improve. The fear, though, is that the resurgent commodity boom may not last for long.

Expensive tastes
Incidentally, despite the ramped-up foreign borrowing by African sovereigns, some of the projects the monies are supposedly aimed at are floundering. In April, it was revealed that Kenya, which raised $2 billion from the eurobond market in Q1-2018, was having difficulty funding its $3.5 billion 473km Nairobi-Mombasa expressway project; which was being financed with commercial loans. Not that there is concern that the project would be abandoned: new debt is expected to be in place by mid-year. But with Kenya’s public debt more than 50 percent of GDP already, Central Bank of Kenya governor Patrick Njoroge has started to ring the alarm bells. And so have development partners like the IMF and World Bank. The Kenyan case is instructive because just as it is seeking mulitlateral and capital market debt, so is it also aggressively acquiring expensive commercial bank debt. Neighbouring Uganda, is also increasingly a cause for concern. In the last three years, Uganda’s public debt has risen three times to $15.1 billion from about $6 billion; and more than half of the indebtedness is foreign. Just like in the Kenyan case, the central bank has warned about the disturbing trend. There is increasing risk it might default on its obligations if it refuses to put its appetite in check. The ramped-up Ugandan foreign borrowing is like the Ghanaian case, where an expectation of higher revenue from newly disovered oilfields made the authorities throw caution in the wind. At least, in the case of Ghana, the oil has started flowing; albeit it still does not earn as much revenue yet to justify the earlier recklessness. In the Ugandan case, oil revenue are not expected until 2020 at least. Other African countries of concern are Angola, Chad and Gabon. The Chadian case is a great example of how risky it still is to lend money to African sovereigns. In 2014, Glencore, a commodity trading firm, together with some commercial banks lend Chad $1.4 billion. It was intended that Chad would fulfill its obligations with earnings from future crude oil exports. When oil prices tumbled, the arrangement went up in shambles. Chad was only able to agree a restructuring deal with Glencore and the consortium of banks this year. In mid-April, Fitch, the rating agency, raised concerns about the disturbing trend of such arrangements and the increasing preference of African sovereigns for international debt capital markets; reckoning African sovereigns other than South Africa have to repay at least $6.5 billion in foreign debt over the next five years, more than four times the amount in the preceding half a decade of $1.4 billion. Both investors and issuers should tread with caution.

There have been some pertinent developments since the writing of this article in mid-April and publication in the Q2-2018 issue of African Banker. South Africa sold $2 billion in eurobonds in mid-May. Judging from the orders, it could have sold almost twice as much. Eskom, the country’s power utility, announced in early June it plans to issue a eurobond before end-August; part or all of the $1.6 billion in new external borrowings expected in the current year. In mid-June, Zambia announced it was suspending all planned borrowings indefinitely. Why? Finance minister Margaret Mwanakatwe put it rather well: “The debt sustainability analysis has confirmed that we need to undertake measures to bring debt risk to moderate from the current high risk”. Angolan debt exposure to China has become a source of renewed concerns. Half of Angola’s external debt of about $22 billion are Chinese loans, and another $4 billion is reportedly being negotiated with them; according to the Financial Times in mid-June. As repayments were arranged to be in the form of crude oil, the country’s foreign exchange reserves are not accreting as they could have otherwise. Besides, Afreximbank is already arranging up to $2 billion in new debt, according to Reuters in late May. These are just a few examples. Despite warnings, they point to a continued debt binge on the African continent. And with the American central bank already signalling more rate hikes this year from an increase to 2 percent in mid-June, and the U.S. 10-year treasury yield swinging around the 3 percent area, incremental external borrowings by African sovereigns would be increasingly costly.

Will Facebook’s troubles cost Africans?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In April, Facebook chief executive Mark Zuckerberg endured two days of gruelling scrutiny by the United State Congress. He came out of it largely unruffled. There was not much that Mr Zuckerberg revealed that was not already known. But coming from the horse’s mouth as it were, it was chilling to say the least. “In general we collect data on people who are not signed up for Facebook for security reasons”, Mr Zuckerberg said in reply to a question by Ben Lujan, a member of Congress on the US House Energy and Commerce Committee. Mr Lujan replied almost in rebuke: “You’ve said everyone controls their data, but you are collecting data on people that are not even Facebook users who have never signed a consent, a privacy agreement”. Mr Zuckerberg did not seem bothered: he simply justified the act. During the course of the hearings, it became clear that not only did Cambridge Analytica, a British data firm believed to have helped American Donald Trump’s election campaign, access the records of 87 million Facebook users’ without their consent, there were likely many more such firms and individuals doing similar or perhaps worse things. But why wouldn’t they? After all, Facebook already did whatever it liked.

Leader of the not so free world
Before Mr Zuckerberg’s testimony on the first day of the hearings, an army of photographers took pictures of every angle of his carriage. Not even Mr Trump or Fed chairman Jerome Powell get that level of attention these days. To the discerning, it perhaps became writ large that the most powerful person in the world may no longer be the person with the codes to the world’s largest and most lethal nuclear arsenal or the person able to sway global markets just by opening his mouth but an unassuming t-shirt wearing founder of a social media website. How the world has changed. Mr Zuckerberg is going to be appearing before many more congressional committees more often than he probably realises. The United Kingdom and European Union have asked that Mr Zuckerberg appear in person before their legislative bodies, for instance. There would likely be more.

In fact, the European Union has its eyes set on other tech firms. European Commissioner Vera Jourova put it this way to CNBC, an American television network, in about mid-April: “I don’t have doubts that there are some bad practices among other IT providers and networks. So what I have said about GDPR (the EU’s General Data Protection Regulation) and our serious intention to have the data of all people protected, it applies to everybody, it’s not only related to Facebook”. The GDPR may perhaps become the global model for regulating tech firms that collect personal data and earn income by selling or drawing profitable insights from them. It is not so much that what they do is wrong as it is that they should not be able to do so without the consent of the owners; who should also be able to profit from them if they so wish.

To his credit, Mr Zuckerberg recognises that regulation of his service and those of other tech firms is inevitable. So he did not waste time trying to dissuade the legislators from that line of action. What was clear was that Facebook desired that it should still be allowed tremendous legroom. But judging from the many prominent people who have deleted their Facebook accounts and the scary revelations about the extent of Mr Zuckerberg’s power, it is probably futile for him to expect any significant consideration. Facebook , which is not only able to track the activities of its members on their service but elsewhere, is also able to track the activities of any member who has ever been on the service and the friends and friends of its members who might not necessarily have a Facebook account. It has the capability and it actively uses it.

Data is the new oil
In America and Europe, where Mr Zuckerberg and Facebook are likely be regulated even more now, the citizens there can resort to their legal system relatively inexpensively to seek redress and protect their privacy. They can attempt to, at least. But what about Africans? 1 in 7 Africans use Facebook. Of the 170 million African Facebook users, about 12 percent of the 1.4 billion globally, 22 million are Nigerians, 16 million are South Africans, and 7 million are Kenyans. And 94 percent of Africans who use Facebook log into their accounts via their mobile devices. That number is likely to increase irrespective of whether Facebook becomes a spying monster or not. Because even as it is now public knowledge that Facebook is not so private and that in fact the data of scores of Africans were illegally acquired, there is little chance Africans would delete their Facebook accounts anytime soon. But should Facebook be regulated unduly and forced to offer its service as a paid utility, the number could reduce. And by so doing, the American legislature and others would have unwittingly stifled public opinon and freedoms in African countries; where such rights matter most. Mr Zuckerberg probably had this in mind when he said he envisages there would always be a Facebook service that is “free”; meaning funded by advertising and as it is now known, probably also the indiscriminate use of the free accountholders’ data. In this regard, African governments should probably begin to look at ways to safeguard the data of their citizens. Because even as African countries still have some way to go to catch up on new technologies like artificial intelligence, machine vision, deep learning and so on, there is one resource they can have absolute control over: the data of their citizens on the internet. The Americans certainly know its value; requiring now that visa applications must include Facebook details. Knowing as African authorities might be even worse than errant foreign data firms in terms of privacy and data protection, that may not be something Africans look forward to, though.

Prying eyes, little choice, willing minds
Actually, what facebook is doing is not particularly new. The American, Chinese and Russian governments long monitored the activity of their citizens both physically via ubiquitous surveillance cameras and on the internet. The only difference now is that a private sector player now has the power of a government. The power dynamic, favourable to Facebook at first, is likely to be increasingly less so now that its reach is now known to the legislative authorities. But would that truly be the case? Via Facebook, the American government is able to garner intelligence of almost everyone across the world with little effort and without literally spending a dime. Would any government want to lose such an advantage? And if Facebook begins to ask for money for its services, it could. This is probably why Facebook may get away with current and future infractions. In any case, many Africans would likely continue to sign away that privacy without care to enjoy a service that they literally now need in their part of the world to prove that they are alive. For the poor, the loss of privacy is a small price to pay. But as Africans become richer, as it is hoped they would be in due course, they may begin to pay more attention to the little print of the agreements they sign without care when joining these social media platforms. But if Facebook and other global tech firms would continue to monitor everyone’s internet activities whether they are users of their platforms or not, why should they even bother?

Facebook’s Zuckerberg made representations to European lawmakers in about late May 2018; a few weeks after the publication of this article by African Business. Some of them were not entirely pleased by what seemed like disrespect on his part: he left most of their questions unanswered; albeit there was also not much time for him to be pressed harder. There was certainly a marked difference in the regard Mr Zuckerberg gave the Europeans versus their American counterparts; my view. Yes, he apologised. But to what end? There is still much more that needs to change. Lately, in early June, it was revealed he may not have been entirely honest in his testimony to the US Congress: device manufacturers, Apple and Samsung, had “deep access” to Facebook’s user data, a report shows. It also recently came to light that Facebook and other global tech giants may have bent over backwards to make inroads into the Chinese market; where they are still not able to operate freely, if at all. Huawei, a Chinese telecommunications equipment manufacturer that America considers a national security threat, had access to some Facebook user data, for instance. Other examples abound. Besides, many more firms have since been found to have committed data infractions like the now defunct Cambridge Analytica did; and perhaps much worse even. That said, Facebook has since implemented several privacy safeguards. Even so, there is probably much that would always breach the gates.

Reporter’s Notebook: At the FT Nigeria Summit (1)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

I did my first proper “hustling” as a reporter on the last day of May just past. It was at this year’s Financial Times Nigeria Summit. As a correspondent for London-based African Business and African Banker magazines, I am now supposed to chase after important people for interviews and comments. It was probably an ideal event for one just getting into the life: the targets were all in one room. Of course, I had to grapple with the oft encountered dilemma of plenty and yet little. There were as many reporters as there were VIPs. And you are each supposed to get unique material. In the end, I settled for less is more. In other words, I sought the story I was interested in, not the people; eventually. Hitherto, my focus was on the persons I had shortlisted for interviews ahead of the event. Yes, I did chase after those. But so were others. And since the targets are human beings, there is only so much they can do. That is, if they choose to be nice. It was also a difficult balancing act following the panel discussions and monitoring my targets. Never mind that I had to keep my eyes on the wires on a day for which there seemed to be breaking news every other minute. Okay, maybe that is an exaggeration. You be the judge. America’s president, Donald Trump, decided to literally stab his country’s allies in the back by slapping tariffs on their goods. Erstwhile Spanish prime minister, Mariano Rajoy, was feeling the heat from the opposition – and was eventually ousted the next day. Italy’s populists were trying to form a government after an earlier failed attempt. Nigeria’s president finally signed a much desired law to allow younger people run for political office. Understandably, the markets were gyrating all over the place. Add to that the many important data releases that funnily seemed to have been deliberately packed into the day. And yes, those interviews, the panels: it was an interesting day certainly.

Good numbers, good story
Nigeria’s vice-president, Yemi Osinbajo, was up first. During the one-on-one interview, FT’s Africa editor, David Pilling, asked him myriad questions. I was particularly interested in one: why did Nigeria not sign the African Continental Free Trade Agreement (AfCFTA)? Would the government sign? Mr Osinbajo said it was not whether the country would sign but what it would sign; suggesting concerns remain. Next was a presentation on the economy by budget and planning minister Udoma Udo Udoma. To his credit, there was a general sense afterwards that he did quite well. His case of a positive medium term economic outlook was certainly helped by what are currently good numbers: inflation is slowing, foreign reserves are up, and the economy is growing; albeit much slower than is desired. The other impressive speech came from Kaduna state governor, Nasir El-Rufai. I was positively surprised by some of his revelations. For example, I did not know Kaduna has passed its annual budget before the New Year since Mr El-Rufai took office. Reforms to sanitise the state’s public service are also laudable. Biometrics and bank verification numbers (BVNs) were used to weed out ghost workers, for instance; five thousand of them in the first three months. Other fiscal reform measures by his government include a fiscal responsibility commission, procurement agency and financial management law. Thereafter, I asked him about his efforts to revive moribund industries in the state; textiles especially. Chinese investors are being sought in this regard, it seems. There is also the smuggling menace that needs to be curbed for any new investment in that sector to be worthwhile. That said, Mr El-Rufai is not without controversy. For example, he does not get along with the federal senators from his state: the trio recently blocked a foreign loan request by him. Even so, it could hardly be refuted that some good things are happening in Kaduna. It is important to mention, of course, that there have been cases of wanton killings there lately. And perhaps until they stop, the government’s gains may be overshadowed by them.

Synergies and partnerships
Are foreign investors being skittish about the 2019 elections? I asked this of Miguel Azevedo, an investment banker at Citi, the American bank. He suggested it was normal for investors to act cautiously around elections anywhere in the world; and was thus more focused on long term fundamentals, not the political cycle. It was a diplomatic answer. The other subject that caught my fancy was mobile money and the almost inevitable struggle between banks and telecom firms in the delivery of the service. Citi’s Nigeria chief, Akinsowon Dawodu, gave the answer that every bank CEO seems to give about the fintech threat these days. The mobile money play was not a zero-sum game between banks and telcos, he averred. “Synergies”and “Partnerships” seemed to be the buzzwords on the finance panel in general. One of the other discussants on it was Oscar Onyema, the Nigerian bourse chief. To him I posed the question about an increasing trend of foreign listings by Nigerian firms. I wondered if this worried him. He seemed relaxed about the developments; so I thought, at least. He had good reason to be, though. True, a number of local firms have been looking abroad for listings. But they have also created opportunities for international partnerships for the Nigerian Stock Exchange. Mr Onyema cited one such agreement with the London Stock Exchange, together with which a local oil firm got listed over there. Art, technology, oil and gas were also discussed on separate panels. Another day for those perhaps?

Nigeria: Why not a market solution to fuel shortages?

By Rafiq Raji, PhD
Twitter: DrRafiqRaji

Nigerians were in for a rude shock last Christmas. Fuel, hitherto abundant, suddenly became scarce. It was artificial, of course. With the political cycle in high gear, myriad negative events have been on the rise. President Muhammadu Buhari blames saboteurs; perhaps a vieled reference to opponents eyeing the presidency in 2019. While he did not say who they were, there is a consensus, amongst the top echelons of the government, at least, that the shortages were contrived. Senate president Bukola Saraki called it an “artificial scarcity” in remarks when the committee put to task to unearth the causes of the fuel shortages and recommend measures to ensure such misery would no longer be meted out to the citizenry again, presented its report. Typically calm, Mr Saraki’s response was a little emotion-laden; reflective of inflamed passions around the issue. Controversy has always trailed the very politically-sensitive issue of fuel supply in Nigeria. Once a subsidised commodity, it was one of the few benefits citizens could claim to get from the government. Verner Ayukegba, principal analyst for Sub-Saharan Africa at London-based IHS Markit suggests why the Buhari administration would be reluctant to raise fuel prices like other countries have done in tandem with crude oil price movements: “It is one of the few ways in which the government can reach a broad set of Nigerians, especially the struggling masses, with subventions.” John Ashbourne, Africa economist at London-based Capital Economics adds thus: “Raising fuel prices is obviously always quite painful – both economically and politically. The government might be hesitant to raise prices now, given that the economic recovery is still fragile and inflation has only just started to come down.” But there is a greater fear for the government should it choose to increase fuel prices at this time: “The potential fallout is negative public opinion against the government in the run-up to next elections”, opines Mr Ayukegba. Could the government mitigate this, though? “In theory, the optimal policy would be to provide targeted grants to lower income people”, says Mr Ashbourne. [But]…poverty alleviation initiatives – social programs – in Nigeria have often come up short”, Mr Ayukegba adds. There are other ways the government could manage to keep the current fuel price of 145 naira unchanged without paying a subsidy to marketers or at least, prevent a steep price hike in the event it decides to be bold. Capital Economics’ Ashbourne makes a suggestion: “In the short run, the government could reduce landing fees and taxes on importers and hope they pass on the savings.” This was also one of the proposals made by state oil minister Ibe Kachikwu when he made a presentation to the Senate committee in January. Mr Kachikwu also suggested that foreign exchange could be made available to fuel marketers at a rate that makes up for any difference between the landing cost and retail price. Another suggestion he made was for a multiple pricing regime whereby marketers would be able to import fuel and sell at any price that suits them while the state oil company sells its own imported fuel at the government approved price. All three suggestions imply some form of subsidy or in the third case, an average price increase.

Cheap fuel, shady deals
Upon the assumption of the Buhari administration, subsidies were stopped. Even so at about 50 US cents for a litre, Nigeria’s petrol is very cheap. Inevitably, savvy entrepreneurs have been making a good trade of either hoarding the commodity or smuggling it to neighbouring West African countries where petrol is dear. Umar Ajiya, chief executive of PPMC, the state oil company’s distribution arm, reeled out the statistics in a media interview in January to support this supposition. Nigeria’s typical daily consumption of petrol is less than 30 million litres. His firm, the PPMC, supplies about 40 million litres a day. During festive periods, the daily supply could be as much as 60 million litres. Mr Ajiya also asserted that at least one ship cargo of 50 million litres is imported by the PPMC daily. Ordinarily, the PPMC should be a marginal player in a supposedly quasi-deregulated market: although the fuel price is set by the authorities, a reasonable margin is incorporated to make the venture profitable for marketers. Considering the price of crude oil and its distillates in the international markets tends to be volatile, marketers would only be able to make a profit if the set price is adjusted with almost as much frequency as the crude oil price changes. Unfortunately, this is not the case; especially when the price rises. In the recent past, the Buhari administration was able to make upward adjustments to the petrol price, when it still had much goodwill. Now in re-election mode, it has become more cautious. To increase the fuel price at this time would be considered very bold indeed. And it could not now say that it has resumed subsidies on fuel products; after having campaigned to remove them in the first place. It used to be a major conduit for corruption.

Liberalise, deregulate and diversify
But it is abundantly clear that the official price of 145 naira for a litre of petrol is not realistic, having been set when the crude oil price was much lower than current levels of above $60. At a landing cost of 171 naira for a litre of petrol, the authorities take a loss of 26 naira on each litre of petrol sold to the public. Marketers complained the authorities were not making up for the difference and insisted on being paid before resuming imports. With the authorities unyielding, in light of the complication that doing so would also imply an acknowledgement that subsidies were being paid, PPMC became the sole importer of petrol. But if it were still selling at 145 naira and importing at a higher cost, how then was it funding the difference? When pressed hard during the earlier mentioned TV interview, Mr Ajiya classified it as an operating cost. Since PPMC is wholly-owned by the government, that operating cost is borne by taxpayers. Simply put, the authorities have been paying subsidy on petrol. As such payments are extra-budgetary and an infraction by the executive branch, Mr Buhari could ideally be impeached because of them; not that this is likely, though. Another suggestion made by Mr Kachikwu is for the country’s moribund refineries to be repaired and perhaps new ones built. As a lot of resources has been wasted in the past to do so, it is probably a bad idea. They could be sold to private investors instead. Incidentally, this was done before; during the administration of former president, Olusegun Obasanjo. Africa’s richest man, Aliko Dangote, was one of the buyers. The sale was revoked by the next administration, however. Instead, Mr Dangote is now building his own refinery from scratch. It is perhaps why the authorities likely reckon they could continue to take losses on fuel imports to ensure the retail price for petrol remains unchanged at 145 naira in the hope that the Dangote refinery would become operational as scheduled in 2019. When completed, the refinery would be able to refine 650,000 barrels of crude oil into petroleum products daily; enough to supply all of the country’s fuel needs with extra to export. But is this a wise strategy? “I would worry about putting so many eggs in one basket”, says Capital Economics’ Ashbourne; “from a pure efficiency perspective, the best option would be to liberalise prices and then deregulate the import stream to allow more competition.

Since the publication of the above article by African Business magazine in early February 2018, which I authored, the Nigerian government has since admitted paying subsidy on fuel imports: “an under-recovery of N774 million [$2.2 million] every day.” At the African Development Bank Annual Meetings in Busan, South Korea, which concludes today (25 May), a former central bank governor put the figure at about 1.4 trillion naira (circa $3.9 million). And even as the authorities refused to call it what it is, the legislature has since given it the proper nomenclature. Sadly, with the Muhammadu Buhari administration already in election mode, the principal of which is actively seeking a second term, the likelihood that market forces would be allowed to determine fuel prices anytime soon is very slim. The opportunity cost of this supposed “political necessity” is sobering indeed.

What should Africa now expect from Trump’s America?

By Rafiq Raji, PhD

In mid-March, whilst en route Washington from Abuja, his last stop on a 5-nation Africa tour, former secretary of state Rex Tillerson first got news, it is believed, of his dismissal by American president Donald Trump; via Twitter at that. Other reports suggest he happened on the news earlier; hence why he declared himself sick for most of his stay in Kenya. It was most disdainful, some African thought leaders reckoned, that President Trump chose to sack his foreign minister in such an odious manner just after a trip to a continent he not too long ago called “shithole countries”. As Mr Tillerson’s trip was supposedly aimed at repairing the damage done by the president when he made the unsalutary remark about Africa, Mr Trump’s insensitivity was taken as evidence he really did not care very much about the continent. There is the potential now, though, that under new secretary of state Mike Pompeo, there is likely to be more efficiency in the African affairs division at Foggy Bottom. And since Mr Pompeo is expected to be primarily focused on North Korea and Iran, he is likely to leave African affairs to his professional underlings.

More security, less trade
Hitherto chief of the Central Intelligence Agency (CIA), which is tasked with acquisition of intelliengence on foreign countries, Secretary Pompeo may not necessarily be totally indifferent about the African continent. But just like his predecessor, security would likely be his major focus. Besides that, there is probably not much more that could be reasonably expected. Interestingly, despite Mr Trump’s nationalistic drift, the American security focus on the African continent is not so much out of a desire for the safety of its citizens as it is about maintaining its influence across the world. In furtherance of this objective, Africa is likely to become a major stage for America to spar with China. In Djibouti, for example, China may be about to acquire control of the crucial sea port there; a key outpost in the Indian Ocean which the American military depends on for logistics, refueling its aircrafts and ships and so on. Already far more influential, China’s nascent challenge to American military arrangements on the continent is beginning to cause some irritation at The Pentagon, it is believed. The Americans remain gentlemanly about the matter, though; albeit they now use the slightest opportunity to advise Africans about the risks of selling their sovereignty way to the Chinese. Imagine that? Africans and their leaders likely ponder the irony: the kettle calling the pot black, they probably wonder bemusedly. The American anti-China rhetoric would probably be ratcheted up regardless, especially as Mr Trump has his eyes almost vengefully set on China, which he accuses of cheating America on trade. So, it is only a matter of time before China’s overwhelming influence in many African countries begin to provoke his ire. And there is no gainsaying the fact that a likely tweet by Mr Trump on the occasion, perhaps in regard of a likely punitive action against an African country he believes to be putting Chinese interests before America’s, is hardly something any African leader wants at this time. African governments could draw some comfort from Mr Trump’s speech at the United Nations last year, though, where he indicated his administration sees Africa as a viable economic partner. Whether he genuinely sees the continent in such good light is probably no matter. In fact, Mr Trump’s aggressive approach to foreign policy issues that catch his fancy suggests an indifference towards Africa on his part may not entirely be such a bad thing.

It has been about two months since I first wrote the article this week’s column is based on. (If you are interested in the more comprehensive version, with commentary by experts and so on, check out the April 2018 issue of African Business magazine.) Considering how much has happened since then, it is quite apropos to now ask: Is there now hope for the continent under Mr Trump? Well, the American president surprisingly hosted Nigerian president, Muhammadu Buhari, in late April, and he put on his widest smile for the visiting head of state; albeit that is not always a good thing if the charmer is Mr Trump. And predictably, the focus of the Trump-Buhari meeting was mostly on security. More importantly, it brought to light Mr Trump now has Africa on his radar. What is comforting at least, is that the American president appears to want to do no harm. Let us hope that remains the case.

Ethiopia: Change must be genuine and quick

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

First impressions matter. I first happened on Nhlanhla Nene, South Africa’s second-time finance minister, some years ago now, at a Chatham House event in London. Former minister in the presidency, Jeff Radebe, was also present, as I recall. Mr Nene and selected ministers were there to take questions from economists, analysts and journalists on the state of their country’s affairs. Africans, often nostalgic about home, who are typical attendees of these Africa-focused events, were also in the audience. I am not sure now what question I asked Mr Nene. But I am almost certain it was a difficult one. As in my own case, my team members would be expecting the notes of the event, I was at the ready with my pen waiting for Mr Nene’s reply – there are usually a couple of questions taken at a time. Imagine my surprise when before answering mine, Mr Nene acknowledged me by name. We had never met before. Naturally, I was pleased. (It is a familiar trick by politicians, I know.) But since I was not the primary analyst for South Africa at my bank, he did not have to put in the effort. I would find out in due course that this was in line with his humble nature.

Smart choices
So yes, I was distraught by his unceremonious dismissal about a year later by the president of South Africa at the time, Jacob Zuma. It did not take long before the reasons why he was excused from the cabinet came to light. Unsurprisingly, Mr Nene got caught in the crosshairs of his erstwhile principal because he would not allow him have his way with the treasury. With the benefit of hindsight, it is now well-known the enormity of the forces he had to contend with. It is not unlikely Mr Zuma particularly took umbrage that someone who should expectedly be culturally inclined to his whims would be so bold. Momentarily, Mr Zuma appointed a replacement so evocative of his disdain for excellence, competence, and integrity that even he, whose unique resilience is without question, could not handle the backlash. Mr Desmond van Rooyen lasted just days as finance minister. His replacement was a former finance minister: Pravin Gordhan. Reports suggest Mr Nene was approached to take his job back but declined. He did himself a great service. Mr Gordan suffered grief upon grief working for Mr Zuma. In the end, the wily former president won what is certainly now a pyrrhic victory. Now, Mr Gordhan has been reappointed minister by President Cyril Ramaphosa; albeit to the probably now equally relevant public enterprises ministry. The drama between Mr Zuma and Mr Gordhan was a source of many columns, as I recall. Two prominent victims of Mr Zuma’s unusual ways, both former finance ministers under him, have made such an extraordinary comeback in relatively little time, that they can be nothing short of inspirational. They are humble, sound and well-respected by market participants. President Cyril Ramaphosa is smart to appoint them to his cabinet.

Same colour
The task before the new finance minister is huge. He inherits a budget that was presented about a week before his appointment. It is not the way he would have wanted to start. Not that he likely cares very much for credit. But a finance minister makes a mark by first setting out an agenda via the budget statement. No matter. He would get a chance later in the year, when hopefully, he would be in good stead and health to present the medium term bugdet policy statement. Even so, the 2018 budget is a good one; a remarkable turnaround by former finance minister Malusi Gigaba – whose “survival” and reassignment to the home affairs ministry is also instructive but not as inspiring – from what was a sloppy mid-term budget in October. In that less than remarkable proposition, Mr Gigaba was honest to a fault about the state of the country’s finances but not as creative or bold with the solutions to fix the problem. In February, he redeemed himself by making firm fiscal proposals that should plug the gaping 50 billion rand hole in the fiscus. Yes, an increase in the value-added tax is not exactly equitable. After all, the huge fiscal gap could be traced to the profligacy of the Zuma administration. What did emerge, though, was how who is president, matters; for some cadres of the ruling African National Congress (ANC) party, at least. Mr Gigaba was impressive under a better sheriff. This is one of the reasons why Mr Nene is a truly remarkable person: he will do the right thing no matter who the president is.