2018 budget should be passed before year end

By Rafiq Raji, PhD

Muhammadu Buhari, the Nigerian president, presents his 2018 budget statement to the legislature on 7 November. He reportedly wanted to do it in late October; to allow ample time for the spending proposals to be considered and passed by December. Some lawmakers have expressed reservations about this. BusinessDay, the newspaper which publishes this column, found out why. There are at least three executive proposals currently under consideration by the lawmakers. First is the 2018-2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). Second is a N135.6 billion virement proposal. And third, a US$5.5 billion foreign borrowing request. My view is that the lawmakers can get them all done on or before 31 December. And they should. Considering how much they get paid, it would not be too much to ask that they go into overdrive, consider and pass them all before heading for their Christmas break.

More spending
In the MTEF, the 2018 spending estimate is put at N8.6 trillion, up by about 16 percent relative to the 2017 budget of N7.4 trillion. Oil production is assumed at 2.3 million barrels per day (mbpd), which would probably be no more than 1.8 mbpd if a likely OPEC production cap in November is sanctioned. But even this level of production may be weighed on by imminent militant attacks on oil and gas infrastructure by agitators in the Niger Delta region. Additional tax measures are planned. A 15 percent tax on luxury goods from 5 percent currently, for instance. An ongoing tax amnesty programme till March 2018 should also boost the government’s finances. Tax revenue performance this year has been quite impressive, with respect to VAT at least; N797.5 billion was realised between January and October 2017, up about 20 percent from the same period last year.

Better narrative
It is not news that the 2017 budget was only partially implemented; never mind shortfalls here and there even for the parts that were. As the authorities likely plan to issue a US$5.5 billion eurobond imminently, it would help a great deal if investors are able to see how things are beginning to indeed change for the better. There have been some positive developments lately. The World Bank recently affirmed the authorities’ ease of doing business reforms are working, raising Nigeria’s ranking 24 places to 145th out of 190 countries. Central bank governor Godwin Emefiele was also recently conferred with an award by Forbes magazine. And in late October, Nigeria kept its place in the MSCI Frontier Markets Index (country weight of 8 percent); attributed to a rebound in the foreign exchange market. So, imagine how truly positive the Nigerian investment narrative would be if the authorities are able to also demonstrate they are succeeding with fiscal policy.

Good plan
Concerns have been raised about the supposedly planned US$5.5 billion eurobond, though. The country’s historical pains with indebtedness make Nigerians naturally wary. Public debt of N19.6 trillion (US$64.2 billion) in June, about 16 percent of 2016 GDP of US$405 billion, should ordinarily not be concerning. But electioneering for the 2019 polls has started in earnest. And President Buhari, hitherto thought might not be seeking a second term in light of his fragile health, recently signalled he has decided otherwise. So there is the risk that new borrowings might not be spent wisely. In response, finance minister Kemi Adeosun is taking pains to explain the rationale behind the plan. Of the US$5.5 billion they plan to borrow, US$3 billion would be used to refinance the authorities’ current debt portfolio. The remaining US$2.5 billion, which would be new borrowing, is intended to in part fill a hole in the 2017 budget; already appropriated for. It seems like a good plan, if you ask me.

Be bold
Feelers that came out initially were that the planned foreign borrowing would be done in two parts. I do not believe this to be wise. Interest rates are rising in the developed world, with the American Federal Reserve expected to hike rates again in December. And only last week, the Bank of England raised its benchmark rate by 25 basis points to 0.5 percent, the first time since 2007. What this portends for African sovereigns looking to issue eurobonds is that potential subscribers are going to insist on higher yields; albeit they would by far still not be as dear as those in their domestic debt markets.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/2018-budget-passed-year-end/

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Buhari needs not change to win a second term

By Rafiq Raji, PhD

Muhammadu Buhari, the Nigerian president, recently proved the point that all politicians are the same. And that power is “sweet”, as we say in local parlance. Just this week, the ruling All Progressives Congress (APC) party held its third national executive committee (NEC) meeting since coming to office. (The penultimate one was held in March 2016.) President Buhari used to occasion to announce plans to rejig his cabinet, appoint more ministers, and make long-awaited ‘juicy’ appointments to the boards of parastatals and agencies. Having resisted overtures to do these hitherto, there is only one conclusion that can be inferred: Mr Buhari has decided to run for a second term. Just so no one is left in any doubt about this, some one proposed the adoption of Mr Buhari for a second term at the NEC meeting. In what was likely a well-choreographed move, the chair stood down the proposal for a later time. But the point had been made. Newspaper headlines afterwards were confusing, though. Some suggested state governors from the ruling party endorsed the president for a second term. Others said they opposed it. The former is more likely, in my view.

Still in charge
It has always been the practice to use patronage to appease influential party members in view of elections. This is not meant in a negative sense. People join political parties in the hope that when they win, they would be able to serve (or have influence) in government. Savvier politicians do what Mr Buhari is about to do belatedly, much, much earlier; when their intentions would not be so writ large. It may also have dawned on Mr Buhari, that no matter how powerful a president is, he still has to abide by party processes and rules. At least, he has to appear to. If you wonder about this, just ask former president, Olusegun Obasanjo. His deputy, Atiku Abubakar, demonstrated how with careful and deft scheming, a sitting president can literally be brought to his knees when such things are treated with levity. Ordinarily, a second 4-year term for Mr Buhari would not be up for question. But considering he spent a great deal of time trying to recover from undisclosed illnesses, it was assumed he would not contest. Lately, however, Mr Buhari has been brimming with confidence, on account of better health clearly. He is not likely totally out of the woods yet; still works from home, for instance, even though this is attributed to ongoing renovations at his supposedly rat-infested office. Even so, is Mr Buhari healthy enough for a second term? Since his medical history remains secret, he is the only one that can answer that question. Relatively younger presidential hopefuls from the north within the APC who were already gearing up to fill his shoes are perhaps now not so happy, though; albeit they are likely to support him without question if he decides to run again. One who may not be so obedient, that is, former vice president Atiku Abubakar, did not show up for the NEC meeting.

Opportune win
Lucky man that he is; the World Bank released its Ease of Doing Business rankings on the day of the NEC meeting. Nigeria moved up 24 places to 145thout of 190 countries. But like Bloomberg aptly put it: it is still tough to do business in Nigeria. Trust the president and his team to make as much hay from it regardless. Information minister Lai Mohammed was in his best form, taking interviews with local and foreign media so that no one forgets how the efforts of the administration led to the feat. Well, on this one, they got it right. And the vindication came from a source outside of their influence. Bear in mind, it is not often that a government, especially a Nigerian one, sets out to do something and records a verifiable quick win in such record time. Mr Buhari set up the so-called Presidential Enabling Business Environment Council (PEBEC) under the headship of his diligent deputy, Yemi Osinbajo, just over a year ago. Incidentally, the recent validation of the administration’s efforts came not long after a second 60-day national action plan (NAP 2.0) to December was launched. But it is not uhuru yet; far from it. Clever man that he is; Mr Buhari acknowledged the myriad challenges that continue to exist. Still, it was an excellent way to make the point that his administration was working, and without having to say it out loud; he would be deserving of a second term.

At what cost
I like Mr Buhari for one major reason: he is as honest as a politican can be allowed to be in this country. He rightly reasoned there should not be as many ministers and political appointees as was the case in previous administrations. And even though the constitution insists there should be at least one minister from the 36 states of the federation, it is wasteful and unnecessary to appoint that much. Mr Buhari can still win without giving up his soul.

Also published in my Premium Times Nigeria column. See link viz. https://opinion.premiumtimesng.com/2017/11/02/buhari-needs-not-change-to-win-a-second-term-by-rafiq-raji/

Additive manufacturing: Implications for African Economies

By Rafiq Raji, PhD 

Global trade, the merchandise exports component of which was about US$15.5 trillion in 2016, according to World Trade Organisation (WTO) data, is expected to shrink by at least half over the next half century due to 3D printing or additive manufacturing (AM).[1] [2] In tandem would be global value chains (GVCs), which were hoped to give African countries perhaps their last fighting chance at industrialisation. At US$346 billion in 2016, African merchandise exports were just 2% of the world total. And 32% of these were oil exports.

Still, African manufacturing has actually been on the ascendancy, growing in real terms by 3.5% a year to US$157 billion in 2014, up from US$73 billion in 2005, with exports doubling to more than US$100 billion in the period.[3]

But what is additive manufacturing? Simply put, as the name implies: it is manufacturing by adding.[4] Unlike the conventional manufacturing process, where an object having been designed is put into form by “cutting, drilling, and milling”, “a 3D-printer starts with nothing and add stuffs to it”.[5] With the aid of a computer programme, a 3D-printer is able to produce a 3-dimensional physical form of what was hitherto no more than a virtual representation. However, relative to traditional manufacturing, the additive kind is slow and expensive. In addition, the quality of produced objects can sometimes be doubtful. But it is fast evolving to overcome these constraints.

Bespoke specialist products or prototypes are better suited, therefore. For now. Incidentally, there are indications that improvements could come about faster than expected. Take polymer-based manufacturing, for instance: digital light synthesis pioneered by Carbon, an American producer of 3D-printers, allows for a process 100 times faster than conventional printing. And objects produced are of far greater quality and strength.[6] For metal printing, better methods are beginning to emerge as well. An example is “bound-metal deposition”, which produces objects 500 times faster than traditional laser-based ones.[7] Thus, the ascendancy of additive manufacturing to mainstream production is only a matter of time.

African manufacturing trend (2005-14)
AM1.png
Source: Overseas Development Institute (ODI)

Manufacturing more and better with less
On the face of it, the economics of additive manufacturing is very appealing, bar the earlier highlighted, but fast disappearing constraints. Altering objects or producing new ones simply require a change of software, for example. Under traditional manufacturing, this would entail the procurement of new equipment, re-training of staff, modifications to value chain activities and so on. Improvements would evolve at different paces for each type of printing, though. For certain kinds, complex and high-end objects like aircraft parts, satellites, racing cars and medical devices, speed is not what really matters. Greater emphasis is placed on quality and precision.

For such, a relatively slower and more expensive additive manufacturing process entail costs that pale in comparison to the potential gains. And since the end-users tend to have the deep pockets and patience for that level of precision and quality, 3D-printing is already fast gaining ground for that manufacturing segment. There is evidence of this. American industrial giant, General Electric, is investing a great deal in 3D-printing, to produce parts for jet engines, for instance.[8] This is also the case for less space consuming, but equally (if not more so) complex bio-printing, which involves smaller laboratory-type equipment, but require greater care to maintain the sterility and salubrity of produced tissues. These could range from cartilage to more complex organs like hearts, livers and so on.[9]

With automation and 3D-printing, high-wage developed economies may no longer be in much need for manufacturers, whether as intermediates or finished goods, from African and other low-wage countries. Short of raw material constraints, any country would in the not-to-far distant future be able to virtually manufacture any good using a 3D-printer. And if advances in 3D-printing proceed as currently envisaged, it would be possible to do so at about or more than the current speed of traditional manufacturing processes. When that is the case, in about four decades from now, at least according to recent research by ING, a Dutch bank, there might not be that much need for labour-intensive manufacturing, the type African countries need to keep their teeming idle youth populations constructively engaged.

ING’s report suggests about a quarter of world trade could be wiped out by 2060 on the back of advances in 3D-printing, especially in car manufacturing.[10] Incidentally, this was the type of manufacturing that African countries were banking on and have actually been recording some progress with. A Chinese-backed car assembly plant in South Africa is expected to start exporting cars in early 2018, for instance.[11] As the first new car plant in South Africa in at least forty years, it represents an expected trend of that kind of manufacturing moving to relatively lower wage economies from an increasingly pricey Chinese labour market; even though the South African labour market is amongst the most expensive and disruptive on the African continent.[12]

The move probably anticipates the earlier highlighted game-changing automation trends: most of the cars are to be sold in neighbouring countries, which makes sense. It would be cheaper to ship the cars across the border by road and rail, within a region governed by a single tariff regime, that is also relatively borderless, than to ship them all the way from China. Incidentally, the Chinese car manufacturer is following in the footsteps of more experienced and advanced competitors like Germany’s Volkswagen and BMW, Japan’s Toyota and America’s Ford. The Chinese move also pre-empts announced plans by authorities to phase out of fossil fuel cars in France and the United Kingdom (and likely elsewhere in Europe) from 2040, and indeed China itself, in what its authorities termed the near future.[13]

Of course, there are arguments that suggest this likely shrinkage in low-skilled labour-intensive manufacturing and its associated value chains may be grossly exaggerated, especially for developing countries.[14] This is because there are still certain types of manufacturing that robots are not yet skilled at, or if nearly so, they are not cost effective. For example, the textile industry entails certain complications that advances in robotics are yet to master.[15]

3D printing’s impact on world manufacturing production
AM2.png
Source: ING, Oxford Economics; Wohlers report 2017, 3D printing and additive manufacturing, state of the industry, annual progress report, calculations by ING

But that is not to say that even in that sphere of manufacturing, robots are not increasingly taking the place of humans. They are. According to a recent report by The Economist in the UK, one American robotics firm, SoftWear Automation, produces machines that do what seamstresses do in textile factories – not everything yet, though – so-called “Sewbots”, which can already make pillows and bath mats, but would by 2018, if all goes according to plan, be able to produce 1,142 T-shirts per eight-hour shift. This is almost twenty times the output of a human involved in a similar task.[16]

And in the time horizon that recent research suggests 3D-printing would become fast and sharp enough to beat current traditional manufacturing processes, automation would well have become far more advanced. These advances are also somewhat egalitarian; China is a dominant buyer of industrial robots. Besides, a third of industrial robots that were shipped in 2015 were destined for middle-income countries; albeit the earlier mentioned Sewbots have only been sold in the USA.[17] In fact, such are these advances now, the mystery behind current perennially tepid inflation in developed economies is beginning to be attributed to these developments.[18] Even more groundbreaking, the orthodoxy of how countries are meant to develop is increasingly being challenged; which suggests that economies first make the transition to industry from agrarian agriculture before moving on to services.

China’s evolution is a typical example with its manufacturing jobs moving to other Asian countries (and expectedly African ones in due course), not only because wages have risen, but also due to a focus now on services. With advances in robotics triggering so-called “premature de-industrialisation” in developing countries, as manufacturing jobs move back to advanced economies (which increasingly compare favourably cost-wise due to automation) from cheaper labour jurisdictions, suggestions about leapfrogging the industrial development phase straight into services is beginning to gain resonance. Clearly, current industrial policy and thinking in many African countries would have to be rethought in light of these developments.

Industrialisation in Africa
Do African countries still have a chance to industrialise then? Put another way, do they need to? In addressing the question, the time left for any such development must first be countenanced. So, as earlier highlighted, 3D-printing would likely become advanced enough to cut international trade by half in about 40 years’ time. That is still a long time in any country’s development. So yes, African countries still have a chance to industrialise and yes, they still need to. But in doing so, they must begin to position themselves to ensure that the acquired competencies could be easily upgraded to ensure relevance in the envisaged future of manufacturing expected to be dominated by automation and 3D-printing.

Besides, should African countries focus more of their trade efforts on themselves, they could gain at least another 20 years during which they could still prosper from what may have become redundant competencies outside of the African continent. Better still, African countries should begin to focus on global value chains in the services sector; that is, upstream and downstream value chain activities before and after the processing stage. That way, when manufacturing becomes largely automated, they would still be relevant in what would have become shorter GVCs. As it turns out, services GVCs are also more lucrative.

The thinking has some precedence: the so-called “smile curve” theory, first proposed in 1992 by Stan Shih, founder of Acer, a Taiwanese personal computer (PC) manufacturer.[19] The smile curve concept of GVCs argues there is more value to be added at the product design (upstream) and marketing stages (downstream) of a value chain than at the manufacturing or processing stage.

The smile curve depicting value distribution along a GVC
AM3
Source: OECD

In any case, more traditional sectors like agricultural production and its related industries are unlikely to be scathed, though. So, it ought to be accorded greater attention; especially now that it is clear that Africa’s bulging jobless youths would probably only be absorbed substantially by such sectors of the economy. In other words, the solution to the high unemployment problem that was being sought in labour-intensive manufacturing, should now be aggressively pursued in agriculture.

In this regard, there would be a need to ensure that production is weaned of the elements. Agriculture could not continue to be rain-fed, for instance. That said, there are certain types of manufacturing that would likely be resilient to AM-related and automation disruptions; that fast-moving consumer goods (FMCGs) are likely to continue thriving, for instance.

Other types of manufacturing like crude oil refining, cement production and so on would likely be marginally affected. But these are already largely automated anyway. However, further down their value chains, in distribution and marketing, where humans must necessarily be involved, automation and AM-type innovations are likely to be inconsequential. Even so, African industrial thrusts would likely only be more rewarding and sustaining if they are aimed at domestic and continental consumption. It could also would buy African countries some time as they adapt to some of these advances.

Simply put, there is going to be a need for African countries to protect their markets. This is because even as the externalities of these industrial advances and other fourth industrial revolution developments are yet unknown, there is a greater likelihood they are likely to be negative for less developed economies, African ones especially. It is not farfetched to reckon that in time, Africans would acquire the necessary experience and skills that they would need to participate actively in what is expected to be a knowledge-based world economy. But unlike more adaptable technologies in sectors like telecommunications, where in the absence of legacy encumbrances, African countries have been able to leapfrog to mobile telephony and internet technologies from hitherto backward and dysfunctional telecommunication infrastructure, manufacturing and industry are not so easily adaptable or replicable. In the current context, for instance, an African country could not suddenly be able to produce industrial robots or 3D-printers or innovate fast enough to compete with advanced economies that are already way ahead. The current and likely future model for developing countries is that these innovations would be procured from such economies. But without an already robust industrial base and a workforce easily upskilled, such as is the case in China, the potential economic gains from such an adaptation could still be a net negative.

Even so, it is not impossible that some 3D-printing technologies could emanate from developing countries, including Africa (or be readily accessible to them). But it is almost certain the advanced ones would only be available to them subject to the discretion of authorities in the countries of the original equipment manufacturers (OEMs).

For the former scenario, there is already some evidence. South Africa is already actively engaged in additive manufacturing, especially in jewellery, tooling and prototyping.[20] More heartening is the fact that it is producing the technology at home and its innovations are evolving at almost about the same pace as those in advanced economies. For instance, the Aeroswift machine, produced by Aerosud ITC and the Council for Scientific and Industrial Research (CSIR) National Laser Centre, both in South Africa, is the world’s biggest powder bed fusion additive manufacturing machine, and would be used to produce metal parts for an aircraft programme.[21]

South Africa’s progress has been on the back of support from the government, though, which at the urging of the Rapid Product Development Association of South Africa (RAPDASA), commissioned a roadmap in 2013 dubbed “South African Additive Manufacturing Technology Roadmap[22], with the production of parts for the medical and aerospace industries identified as key focus areas. For traditional manufacturing, it was proposed that AM be used to improve efficiency and for repairing what used to be unserviceable parts.[23] Today, South Africa is considered competitive in both polymer-based and metals-based AM.[24]

But there is progress up north as well. In October 2017, Elephab, a Nigerian replacement and emergency parts additive manufacturer, secured funding from an American venture capital firm.[25] It already has continental ambitions, pointing to likely innovation from multiple sources within the continent. Noteworthy though is that the 3D-printers to be used by the Nigerian example are to be procured from Germany and the USA. So, to that extent, South Africa is more advanced.

It helps of course that South African universities already teach the subject; a wide knowledge gap is one of the other major constraints holding back additive manufacturing in general. African countries could leverage on South Africa’s growing expertise to leapfrog into additive manufacturing as well. What is clear, though, is that there would be something that may still put currently advanced economies ahead, raising the barrier to entry. The emerging scenario is that most African countries would necessarily procure their 3D-printers from America and Europe, now and in the future. If African countries must stand a chance then, they would need to protect their markets.

In this regard, it would seem their so-called development partners are already thinking ahead, pushing such supposedly mutually-beneficial preferential trade agreements as the European Economic Partnership Agreements (EPAs) and the American African Growth and Opportunity Act (AGOA). On the face of it, they are not necessarily bad. But when agreed, African countries would have obligations of reciprocity. This is the downside. Because in an environment where a technology is widely available and replicable, comparative advantage would then have to come from being able to do what everyone else is able to do faster. There is no scenario that could possibly be envisaged at the moment that puts African countries in a position to manufacture goods better in the future than their advanced counterparts; that is, even if AM technologies prove to be egalitarian. But if African countries were already entrenched in services GVCs, they would still be able to profit quite well from these advances. Even so, it would be best if they developed their own continental value chains and make other African countries the primary focus of their manufacturing. In that event, the expected shrinkage of global GVCs on the back of automation and additive manufacturing, would be no great matter for them.

Plug into GVCs where it matters
Plugging into global value chains took centre stage after the performance of industrial policy in many African countries (predominantly import substitution) proved to be abysmally poor.[26] There was a clear need to change the focus on developing whole value chains to one which leveraged existing cross-border ones by multinational companies (MNCs). But there was a catch. The aspiration of being able to manufacture finished goods for domestic consumption and exports, would have to be abolished. So, take the example of a car. As opposed to the traditional policy of trying to manufacture one, from design to production, the thinking became that it would be more optimal if an African country or other developing ones chose to produce one or more components of the car for which it had a comparative advantage. As for cars, what has happened mostly is that the few African countries who participate in that value chain, have mostly ended up just being assemblers of the cars targeted at domestic and neighbouring markets.

However, in general, the idea of GVCs supposed that value would be added to imported inputs or raw materials domiciled locally, and then the improved intermediate goods would be shipped to more able manufacturers abroad. So, a country with rubber in abundance, say, could produce car tyres for car factories in Detroit, Guangzhou, and elsewhere. And then they would import the finished cars for its local market. Or better still, import other components to add to the ones it produces for domestic assembly. Expected disruptions from automation and additive manufacturing means that whatever progress has been made in this regard, may not be of much value in a few decades. That might be putting it mildly. Cars themselves are evolving so fast that just when developing countries are beginning to gain mastery in the assembly of fossil fuel-based ones, innovations to make batteries smaller and last longer have improved the prospects of electric cars replacing them a great deal.

So, say industrial policy is successful in car manufacturing in an archetypal African country, the acquired competencies and associated value chains may not be of much use in the future. Thus, African industrial policy must begin to anticipate these disruptions if the continent is to stem the tide of its perennial relative backwardness. Incidentally, Asian countries, which beat their African counterparts to become key players in global value chains, have now also started to position themselves for relevance when that time comes.

Depth of integration of SSA countries in GVCs
AM4
Source: IMF

In 2014, the African Development Bank (AfDB) compiled an extensive report on how little integrated African countries were with global value chains (GVCs).[27] Global value chains are currently dominated by Europe, North America, and East Asia; together about 85%.[28] The share of East Asian countries has been increasing, though, rising to 16.2% in 2011, from 14.4% in 1995. In contrast, that for Europe and North America have been shrinking; the former to 50.9% from 57.5% and the latter to 11.8% from 13.1% in the period.[29]

What is the extent of Africa’s stake then? About 2.2% in 2011, from 1.4% in 1995.[30] And smaller African countries like Lesotho, Mauritius, the Seychelles, Swaziland, and Tanzania are more plugged into international production networks, among the top 30 participating countries in GVCs.[31]Incidentally, what additive manufacturing portends for even that meagre African participation in GVCs, is quite dire. With an estimated 1 billion workforce by 2040, and expectedly more about the time 3D-printing is expected to overcome earlier highlighted constraints, and potentially render redundant precisely the type of labour-intensive manufacturing that have long been envisioned would be used to put that labour force to work, the dangers to global security and peace could best be imagined.

Lack of jobs at home is the primary reason young Africans brave stormy seas to illegally migrate to Europe and almost anywhere else outside the African continent. Thus, unless African governments begin to plan for how this many people would find work, value-adding ones at that, they are likely to have a major crisis on their hands. With new production technologies, robotics and 3D-printing already engendering so-called “re-shoring,” whereby globally dispersed labour-intensive production stages of GVCs in low wage economies are increasingly now being returned to what hitherto were considered high-wage headquarter countries.

African governments would need to rethink plugging into GVCs; at least, they would need to be smarter about it. They could focus on industrial sectors that are likely to be minimally affected, for instance. Better still, they could momentarily focus on developing capacities in non-manufacturing activities, upstream and downstream of manufacturing or so-called services GVCs.[32]To this end, policy must be as it was in the Asian case, namely deliberative, proactive and forceful.

Focus on global value chains in the services sector
The foreign content of the exports of developed countries are expected to decline as 3D-printing makes high-wage economies competitive again, thereby reducing the need for them to manufacture intermediates and/or assembly finished goods in low-wage economies. This would dash the hopes of low-wage African countries looking to attract cost efficiency-seeking manufacturing foreign direct investment (FDI). Not that there were not already sharp wage disparities between African countries, meaning the impression of homogeneity of cheap wages is somewhat misplaced. Average wages in Kenya of US$2,854 are more than three times those in Ethiopia of US$807, where the pace of industrial development is quicker.[33]

Would it not be better then for African countries to focus on services-related GVCs, rather than develop capabilities in goods-related ones, only for them to become obsolete? African countries could specialise in upstream activities like research and design and also be key players in downstream activities like marketing and distribution of the finished goods. Put another way, the choice African countries face is whether to develop proficiencies in less than 40% of the share of value-add in world gross exports, but with competencies that would endure, or instead develop capabilities in the remaining 60%, but run the risk that any achievement could easily diminish on the back of automation and additive manufacturing.[34] Studies show such a choice is mutually exclusive, though.[35]

So, a services GVC focus would be at the expense of manufacturing-related ones. But even when that choice is made, the factors responsible for the current low African participation in GVCs are not likely to be any different. Whether the focus is on goods GVCs or services GVCs, reliable power supply, good roads, and efficient ports remain crucial. Economic institutions like the rule of law and property rights are also indispensable. Thus, irrespective of the strategic choice that is eventually made, it must be in tandem with fixing these traditional deficiencies.

Dr Rafiq Raji wrote this article for the NTU-SBF Centre for African Studies of the Nanyang Business School, Singapore, where he is an adjunct researcher

Also published by NTUSBFCAS, HowWeMadeItInAfrica. See links viz. https://www.howwemadeitinafrica.com/additive-manufacturing-implications-african-economies/60103/

https://ntusbfcas.com/african-business-insights/content/additive-manufacturing-implications-for-african-economies

Also published in my BusinessDay, Premium Times columns. See links viz.
https://opinion.premiumtimesng.com/2017/10/27/additive-manufacturing-implications-for-african-economies-by-rafiq-raji/

http://www.businessdayonline.com/additive-manufacturing-implications-african-economies/

[1] Trade recovery expected in 2017 and 2018, amid policy uncertainty (WTO, Apr 2017) https://www.wto.org/english/news_e/pres17_e/pr791_e.htm

[2] 3D printing: a threat to global trade (ING, Sep 2017) https://www.ingwb.com/media/2088633/3d-printing-report-031017.pdf

[3] Why African manufacturing is doing better than you think (ODI, Apr 2016) https://www.odi.org/comment/10382-why-african-manufacturing-doing-better-you-think

[4] Additive manufacturing: The factories of the future (The Economist, Jul 2017) https://www.economist.com/news/briefing/21724368-recent-advances-make-3d-printing-powerful-competitor-conventional-mass-production-3d

[5] Additive manufacturing: The factories of the future (The Economist, Jul 2017) https://www.economist.com/news/briefing/21724368-recent-advances-make-3d-printing-powerful-competitor-conventional-mass-production-3d

[6] Additive manufacturing: The factories of the future (The Economist, Jul 2017) https://www.economist.com/news/briefing/21724368-recent-advances-make-3d-printing-powerful-competitor-conventional-mass-production-3d

[7] Additive manufacturing: Printing things everywhere (The Economist, Jul 2017) https://www.economist.com/news/leaders/21724397-sceptics-doubt-technology-can-be-used-mass-production-just-wait-3d-printers-will-change

[8] GE is building the world’s largest ‘additive’ machine for 3D printing metals (GE Reports, Jun 2017) https://www.ge.com/reports/ge-building-worlds-largest-additive-machine-3d-printing-metals/

[9] Additive manufacturing: The factories of the future (The Economist, Jul 2017) https://www.economist.com/news/briefing/21724368-recent-advances-make-3d-printing-powerful-competitor-conventional-mass-production-3d

[10] 3D printing: a threat to global trade (ING, Sep 2017) https://www.ingwb.com/media/2088633/3d-printing-report-031017.pdf

[11] BAIC expects first cars from South African plant by early 2018 (Reuters, Sep 2017) https://af.reuters.com/article/investingNews/idAFKCN1C119U-OZABS

[12] Global Value Chain Development Report: Measuring and analyzing the impact of GVCs on economic development (World Bank, WTO, 2017) https://www.wto.org/res_e/booksp_e/gvcs_report_2017.pdf

[13] China to ban production of petrol and diesel cars ‘in the near future’ (The Guardian, Sep 2017) https://www.theguardian.com/world/2017/sep/11/china-to-ban-production-of-petrol-and-diesel-cars-in-the-near-future

[14] Sew what now? Worries about premature deindustrialisation (The Economist, Oct 2017) https://www.economist.com/news/special-report/21729864-automation-less-threat-workers-emerging-world-it-made-out

[15] Sew what now? Worries about premature deindustrialisation (The Economist, Oct 2017) https://www.economist.com/news/special-report/21729864-automation-less-threat-workers-emerging-world-it-made-out

[16] Sew what now? Worries about premature deindustrialisation (The Economist, Oct 2017) https://www.economist.com/news/special-report/21729864-automation-less-threat-workers-emerging-world-it-made-out

[17] Sew what now? Worries about premature deindustrialisation (The Economist, Oct 2017) https://www.economist.com/news/special-report/21729864-automation-less-threat-workers-emerging-world-it-made-out

[18] Unraveling the mystery of ‘missing’ inflation (Nikkei Asian Review, Oct 2017) https://asia.nikkei.com/Politics-Economy/Economy/Unraveling-the-mystery-of-missing-inflation

[19] The smile curve: Evolving sources of value added in manufacturing (UNIBA, Mar 2014) http://www.uniba.it/ricerca/dipartimenti/dse/e.g.i/egi2014-papers/ito

[20] South Africa aiming to become a leader in additive manufacturing (Engineering News, Dec 2015) http://www.engineeringnews.co.za/article/south-africa-aiming-to-become-a-leader-in-additive-manufacturing-2015-12-04/rep_id:4136

[21] South Africa aiming to become a leader in additive manufacturing (Engineering News, Dec 2015) http://www.engineeringnews.co.za/article/south-africa-aiming-to-become-a-leader-in-additive-manufacturing-2015-12-04/rep_id:4136

[22] Implementing the South African additive manufacturing technology roadmap – The role of an additive manufacturing centre of competence http://www.nstf.org.za/wp-content/uploads/2016/03/Additive-Manufacturing-Roadmap.pdf

[23] Implementing the South African additive manufacturing technology roadmap – The role of an additive manufacturing centre of competence http://www.nstf.org.za/wp-content/uploads/2016/03/Additive-Manufacturing-Roadmap.pdf

[24] South Africa aiming to become a leader in additive manufacturing (Engineering News, Dec 2015) http://www.engineeringnews.co.za/article/south-africa-aiming-to-become-a-leader-in-additive-manufacturing-2015-12-04/rep_id:4136

[25] NeuBridges-incubated 3D printed parts company ElePhab gets international VC funding (LinkedIn Pulse, Oct 2017) https://www.linkedin.com/pulse/neubridges-incubated-3d-printed-parts-company-elephab-rich-tanksley/?trk=v-feed

[26] Industrialization for economic transformation and sustainable development in Southern Africa: Addressing the gaps (UNECA, Mar 2013) http://repository.uneca.org/bitstream/handle/10855/22748/b11538429.pdf?sequence=1

[27]Global value chains and Africa’s industrialisation (AfDB, 2014) http://www.africaneconomicoutlook.org/sites/default/files/content-pdf/Edition_Thematique_EN_web.pdf

[28]Global value chains and Africa’s industrialisation (AfDB, 2014) http://www.africaneconomicoutlook.org/sites/default/files/content-pdf/Edition_Thematique_EN_web.pdf

[29]Global value chains and Africa’s industrialisation (AfDB, 2014) http://www.africaneconomicoutlook.org/sites/default/files/content-pdf/Edition_Thematique_EN_web.pdf

[30]Global value chains and Africa’s industrialisation (AfDB, 2014) http://www.africaneconomicoutlook.org/sites/default/files/content-pdf/Edition_Thematique_EN_web.pdf

[31]Global value chains and Africa’s industrialisation (AfDB, 2014) http://www.africaneconomicoutlook.org/sites/default/files/content-pdf/Edition_Thematique_EN_web.pdf

[32]Global value chains and Africa’s industrialisation (AfDB, 2014) http://www.africaneconomicoutlook.org/sites/default/files/content-pdf/Edition_Thematique_EN_web.pdf

[33] Global Value Chain Development Report: Measuring and analyzing the impact of GVCs on economic development (World Bank, WTO, 2017) https://www.wto.org/res_e/booksp_e/gvcs_report_2017.pdf

[34] Global Value Chain Development Report: Measuring and analyzing the impact of GVCs on economic development (World Bank, WTO, 2017) https://www.wto.org/res_e/booksp_e/gvcs_report_2017.pdf

[35] Global Value Chain Development Report: Measuring and analyzing the impact of GVCs on economic development (World Bank, WTO, 2017) https://www.wto.org/res_e/booksp_e/gvcs_report_2017.pdf

South Africa: Gigaba’s first test

By Rafiq Raji, PhD

Malusi Gigaba, the sometimes colourfully dapper – his unique wardrobe include suits with such ‘interesting’ colours like green and purple – South African finance minister, presents his first budget statement on 25 October. It is not the big one; that won’t be due until next year. But the mid-term budget would be a good first test of his 7-month stewardship thus far. Economists polled by Reuters put the likely revenue shortfall in the current fiscal year to be announced by Mr Gigaba at R40 billion (US$3 billion). (It could be up to R55 billion, some suggest.) I did not provide a shortfall forecast but the fiscal deficit projections I expect the finance minister to announce are as follows: 3.3 percent of GDP for the 2017/18 fiscal year, 3.1 percent for 2018/19, 2.8 percent for 2019/20 and 2.6 percent for 2020/21. Of course, if growth were to improve, they would be a little lower. However, there is not much to suggest that the needed structural reforms to spur growth would be implemented anytime soon.

Show me the money
Ahead of Mr Gigaba’s speech, several allegations have emerged he might be following a meticulous script written by his controversial principal, Jacob Zuma, the president of South Africa. Lately, he has made some moves that deserve commendation, though. Dudu Myeni, a Zuma acolyte and perhaps much more, would finally leave her post as chairperson of loss-making and highly indebted national airline, South African Airways (SAA), in early November. Even this supposedly laudable move is being viewed with suspicion. There have been suggestions that the R5 billion (US$374 million) that is needed by end-October to ensure SAA remains solvent could be funded from the coffers of the Public Investment Corporation (PIC), the manager of public workers’ retirement funds. Additionally, as much as US$7 billion in total might be drained from the PIC to sustain ailing state-owned enterprises (SOEs). These suggestions have been met with vehement opposition by labour unions and others. To allay such fears, Mr Gigaba has provided assurances that the PIC’s funds would not be put to such use and has ordered an investigation into alleged irregularities at the PIC. Such moves might still not be enough. Earlier, Julius Malema, the firebrand opposition Economic Freedom Fighters (EFF) party “commander-in-chief”, accused Mr Gigaba of being the architect of the now infamous phrase: “state capture”; which implies the domineering influence of a few private actors in collusion with public officials over state resources. Mr Malema analogizes the finance minister’s assurances to a rat saying one’s cheese is safe with it. Curiously, PIC chief, Daniel Matjila, who earlier asserted machinations were afoot to see his back at the investment firm because he won’t let go off “the keys to the big safe”, somehow got a clean bill of health from the PIC board in late September; after an internal audit about whether he allocated funds improperly. Interestingly, Mr Matjila now says he has not entirely ruled out providing some funds for SAA. But should public workers’ hard-earned pensions be used to revive something so intractably failing? Surely not.

Game of thrones
Hitherto loud political noise have recently become even louder, after President Zuma lost a court case that if he had won, would have enabled him escape his day in court for myriad corruption charges. Regardless of recent directives by the prosecution authorities that he make representations to them before end-November, it is not likely he would be prosecuted (if at all) before he secures a deal to leave office relatively unscathed (see my earlier column on 17 October 2017: “What next after Zuma fails to shake off corruption charges?” for broader views on this). More pertinent is that plans are likely at an advanced stage to remove Mr Ramaphosa as deputy president. The speculations have been fuelled even more by frantic denials from the president’s office. But in Mr Zuma’s case, when there have been speculations in the past, they tend to happen eventually; that is, even after many denials. Besides, a recent surprise cabinet reshuffle that saw the exit of Blade Nzimande, an ardent Zuma critic and leader of the South African Communist Party (one of the ruling African National Congress (ANC) tripartite alliance partners) suggests Mr Ramaphosa’s axing is only a matter of time. Turns out the wait may not be too long. Just this past weekend, reports emerged that Mr Ramaphosa might be arrested and charged with treason as early as November. The reason the president would want Mr Ramaphosa out of his government is not too difficult to discern. Should his deputy win the elective ANC presidential elections in December, Mr Zuma’s likely premature retirement may be very cold indeed.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/south-africa-gigabas-first-test/

Kenya – IEBC should seek guidance from Supreme Court

By Rafiq Raji, PhD

On 18 October, Roselyn Akombe, erstwhile commissioner at Kenya’s Independent Electoral and Boundaries Commission (IEBC), resigned her appointment. She was supposed to be in Dubai overseeing the printing of ballot papers for the 26 October presidential election rerun. Turns out, that was her cover to flee to New York, where she earlier resided before taking on the electoral job at home. It was not her first attempt. She tried to flee on 16 August, after the 8 August election results were released, but was stopped by authorities at the airport. Why did she flee? She gave a series of reasons in a damning statement, where she asserted there could not be a credible rerun poll on 26 October under the current circumstances at the IEBC. She really just feared for her life. (An equally assertive and conscience-striken colleague, former IT manager Chris Msando, was killed 8 days before the 8 August poll.)

Put your foot down
IEBC chairman, Wafula Chebukati, has confirmed Dr Akombe’s allegations: the commission is not only having logistical and technological challenges but is mired in internal strife within its top echelons. Mr Chebukati has asked that staff adversely mentioned, like IEBC chief executive Ezra Chiloba, step aside and allow the project team he has set up to run the election. Dr Akombe avers that even this special team is not well-geared for the rerun poll. Kenyan president, Uhuru Kenyatta, insists the vote must be held as scheduled and has instead called for a national day of prayer on Sunday, 22 October. But what would be the point of prayers when there are a number of things he could do using the powers he already has? Main opposition National Super Alliance (NASA) party candidate, Raila Odinga, has announced a boycott of the poll, but has signalled he could reconsider if the reforms he has asked for are implemented. His supporters have been holding protests hitherto; marred by violence on occasion, after the police fired tear gas and in some cases, live ammunition, at them. Even so, the IEBC has included the names of all the presidential candidates that participated in the original poll; including that of Mr Odinga. So what is the way forward?

Mr Chebukati offered some good advice in his reaction to Dr Akombe’s resignation. President Kenyatta and Mr Odinga should sit down and negotiate a way out; at the very least, to ensure the peace is kept. Mr Kenyatta has ruled this out, however; albeit his actions suggest he may not be entirely averse to a compromise. He is yet to sign an amended electoral law that would allow him automatically be president in the event of a boycott by other candidates. And Mr Odinga has suspended protests till the purported election rerun date of 26 October, when he plans to stage a grand one. A damning insider account about the IEBC’s preparedness like Dr Akombe’s almost surely guarantees that should the polls be conducted on 26 October, they could be easily annulled by the Supreme Court again. But even before her outburst, there were ample signs all was not well. The killers of former IEBC IT manager Chris Msando are yet to be found, for instance; fueling speculations he was killed by people in high places. Dr Akombe not only received threats, but so did her brother; he has fled as well. And even though she has come under criticism from some quarters, accused of being a NASA mole and a spy for George Soros, an activist American libertarian billionaire, her actions were not irrational: she was reportedly getting on the nerves of some powerful people by her inquisitive nature. She did make one key point in her exit statement and interviews, though: Mr Chebukati could be more assertive.

Postpone elections and reconstitute board
The ruling Jubilee party has petitioned the Supreme Court to declare the principals of NASA in contempt of court for their purported boycott of the upcoming presidential election rerun without following due process. (Mr Raila is supposed to submit a signed Form 24A to formalize his withdrawal.) It has also advised that if the IEBC has problems conducting the election rerun on 26 October, it should go to the Supreme Court which ordered the rerun within 60 days of its ruling in the first place. It has a point.

Also published in my Premium Times Nigeria column. See link viz. https://opinion.premiumtimesng.com/2017/10/20/kenya-iebc-should-seek-guidance-from-supreme-court-by-rafiq-raji/

What next after Zuma fails to shake off corruption charges?

By Rafiq Raji, PhD

A court ruled in mid-October that earlier dropped corruption charges against South African president, Jacob Zuma, in relation to an arms deal almost twenty years ago, could be reinstated. It did not order that they should, though, leaving that to the discretion of the prosecution authorities. Considering how weighty and numerous the charges are, it would be quite bizarre if President Zuma is not subsequently charged to face trial. That would be in an ideal world, however. Only a year ago, a lower court decided that the same charges be reinstated; which Mr Zuma then challenged in the court that recently ruled against him. In some climes, Mr Zuma would have long honourably or dishonourably resigned. After this latest setback, calls have for the umpteenth time been made for him to leave office. It would be out of character for Mr Zuma to yield to those calls, though. There have been at least twelve attempts in court by the opposition Democratic Alliance (DA) party to get the same charges reinstated. After this latest rare defeat for the embattled South African president, the DA has wasted no time in piling on the pressure. If history is a guide, what is more likely is that Mr Zuma would buy as much as time as possible, while he negotiates a soft landing with whoever replaces him as ruling African National Congress (ANC) president in December.

Teflon don
Until the charges were first dropped against Mr Zuma in 2009, after evidence of political interference was found, they represented a major obstacle to his lifelong dream of ruling his country. Having secured the ANC presidency in defiance of the incumbent, Thabo Mbeki, who sacked him as deputy president only four years earlier, the charges of fraud and corruption did not seem to have much utility any longer. But now, 8 years into his 10-year two-term presidency, a court has ruled that “the reasons for discontinuing the prosecution [back then]…do not bear scrutiny”. But would state prosecutor Shaun Abrahams, who is well known for his deference to Mr Zuma, now proceed to charge him? Especially as the DA has given him a 10-day ultimatum? This remains to be seen. In the past, however, Mr Abrahams had been more than willing to do Mr Zuma’s bidding: he brought frivolous charges against former finance minister Pravin Gordhan in 2016, who was feuding with Mr Zuma at the time. Should Mr Abrahams prove to be ballsy, however, Mr Zuma would no doubt stall any potential prosecution for as long as possible. He would also likely be seeking some sort of furtive amnesty deal from any of his potential successors; who except deputy president Cyril Ramaphosa are believed to be mostly his proxies. Incidentally, even those lackeys of his might desire that he leaves the scene after the elective ANC conference in December. Thus, they may use his potential prosecution as leverage. So, the probability that Mr Zuma might leave office in January at the latest is quite high. Even so, it would be short-sighted to think he could not pull some rabbit out of a hat. And if he were perturbed by the unfavourable court judgement, he did not show it: on the day of the verdict, Mr Zuma jetted out to Owerri, a city in southeastern Nigeria to receive a chieftancy title.

More than legal costs
It is believed Mr Zuma’s numerous legal battles have cost taxpayers about R30 million. The broader costs to the economy have been much much more. I recall a conversation with a senior market participant some months ago about how investors might decide to move their money elsewhere should a Zuma lackey succeed to the ANC presidency in December. And if you think about it, why wouldn’t they? They see a president who despite overwhelming evidence of malfeasance against him remains securely in office, a central bank under attack, and a once independent finance ministry now under Mr Zuma’s overbearing influence. But above everything else, it is the political uncertainty on the back of Mr Zuma’s troubles that has been most devastating. A central bank official recently acknowledged the risk of further credit rating downgrades due to the associated policy uncertainty. State-owned South African Airways is a good example of how Mr Zuma’s influence is proving to be costly. The national carrier, which the treasury is perennially bailing out, may have been put in better shape had a harder stance been successfully taken earlier by treasury. With a close associate of Mr Zuma at the helm of the airline, despite repeated calls for her ouster, good money continues to be put to waste instead. To provide a sense of the scale, it was recently suggested Emirati airline, Emirates, which estimated its brand value to be worth US$7.7 billion in 2016, could have easily been acquired with the funds used to bail out the South African national carrier thus far. Little wonder, there is suggestion that should Mr Zuma leave, there could be an incremental pickup in output.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. http://www.businessdayonline.com/next-zuma-fails-shake-off-corruption-charges/

What is the North’s restructuring game?

By Rafiq Raji, PhD

Northern political leaders met in Kaduna in mid-October to articulate their position on recurrent agitations by major ethnic groups about restructuring the Nigerian federation. They had hitherto either been silent on the issue or suggested there was no need to change the current governance structure; which most argue is biased in their favour. It would be interesting to know what made them come around on the issue. If history is a guide, perhaps an argument was made that engaging other sections of the country on the great matter would be more beneficial than their aloofness hitherto. Tagged “The North and the future of the Nigerian Federation” and under the auspices of the Arewa Research Development Project (ARDP), I was pleasantly surprised at how well-organized it was. (I shall refer to it as the “Arewa Conference” subsequently.) Not that I made the day road trip to Kaduna from Lagos just to attend: I followed it on social media; which in addition to tweets also included live video feeds of key discussions. And even though, the political elite were accorded the usual prestige, ordinary northerners, especially minorities, were amply represented and had their say. This is important. One of the key problems of the north is the feeling minorities have of neglect and discrimination. Northern political leaders have been keen to use their numbers for supposedly the region’s gain but often to the detriment of the minorities’ interests.

Heard of Catalonia? 
The Spanish region of Catalonia recently voted to form its own country via a secret referendum, after a court declared the planned vote illegal. Tensions remain, even as Catalan president, Carles Puigdemont, has signalled he would not be averse to talks. You would think the Spanish government would be similarly conciliatory. What did Spanish prime minister, Mariano Rajoy, do? He gave Mr Puigdemont a 5-day ultimatum to say pointedly whether his government has declared independence from Spain or not. If in the affirmative, Mr Rajoy has signalled the central government would take over the reins of power in the autonomous region. Still, you have to wonder whether Spanish authorities needed to wait for things to go this awry. Some of the Catalans’ grievances could have been easily managed and perhaps resolved if the central government were more accommodating, for instance. And clearly, even now, it does not appear the Spanish government has taken lessons from its past mistakes. It is also worth noting how fellow European authorities have rallied round the Spanish government while at the same time piling tremendous pressure on the Catalans. Were a similar crisis to be in a developing or African country, they are not known to be so resolute in their support for constituted authority; often urging restraint by central governments while accommodating oft-called “freedom-fighters” or “activists” in tandem. No foreign government has yet to put pressure on regional agitators in southeastern Nigeria, for instance; with evidence suggesting that but for their turning a blind eye, the errant groups might not be so enduring.

That said, the Nigerian government must take lessons from what is happening in Spain. Back home, the problem has not yet degenerated to the point where someone or a group would be able to organize a referendum for independence and potentially get some legitimacy. Besides, when people agitate peacefully, it is usually because despite their dissatisfaction, there is something about the status quo that still appeals to them. Igbos in southeastern Nigeria have long expressed displeasure about the state of their affairs in the Nigerian federation; especially as they are even now not adequately represented in the current Muhammadu Buhari administration. Bear in mind, the Niger Deltans similarly made public their grievances in peaceful ways, and only took up arms after their cries fell on deaf ears.

Stop wasting time
A committee of northern governors, traditional rulers and political leaders are expected to review the final document of the Arewa conference. Town hall meetings would also be held across the region in tandem, the organizers say. Quite frankly, I am not so sure there is a need for that much ado after the Kaduna get-together. If the intention is not to buy time, what the committee under the chairmanship of Sokoto governor, Aminu Tambuwal, should do is to immediately reach out to other regional leaders for a frank talk about the future of the Nigerian federation.

Also published in my Premium Times Nigeria column. See link viz. https://opinion.premiumtimesng.com/2017/10/13/what-is-the-norths-restructuring-game-by-rafiq-raji/