Tag Archives: Angola

Can Africa win Trump over?

By Rafiq Raji, PhD

In mid-May, at the Africa Finance Corporation’s 10th year anniversary infrastructure summit (“AFC Live 2017”) held in Abuja, I asked Jay Ireland, the president and chief executive of GE Africa – the subsidiary of the American industrial giant on the continent – about his thoughts on whether Donald Trump, the American president, would be good or bad for Africa. Specifically, I wanted to know if President Trump would be worth the trouble of winning over. As Mr Trump does not know much about Africa, if the little mention the continent got during his election campaign is anything to go by, engaging with him early on might spring pleasant surprises, some pundits argue. Despite such assurances, I remained a little sceptical. So the opportunity to ask Mr Ireland, who incidentally is also the chair of former President Barack Obama’s Advisory Council on Doing Business in Africa and co-chair of the US Africa Business Centre, which leads the American business community’s engagement activities on the continent, was huge. In a sign of the times and the peculiar style of the current American president, Mr Ireland demurred, humorously wondering if his answer might not become the “subject of a tweet.” More importantly, he said a strong case was being made to the Trump administration to continue ongoing initiatives. I was particulary interested in the “Power Africa” programme initiated during the Obama administration; especially since even during Mr Obama’s tenure, it was floundering, talk less that of Mr Trump. The African Growth and Opportunity Act (AGOA), is not as vulnerable to a Trump rethink, albeit the administration could still exercise certain prerogatives over the choice of beneficiary countries and so on. My interpretation of Mr Ireland’s comments are as follows: Should Africa indeed not be a priority for Mr Trump, ongoing African initiatives may simply continue under the aegis of able and experienced technocrats at the American State department. And in the event Mr Trump suddenly develops a keen interest on African issues, proactive engagement with the administration like his and the business people he represents may be hugely differential. It has also been argued that African heads of state should do likewise.

Focus on first-order issues
In light of the recent exit from the Paris climate accord by Mr Trump, however, some are now beginning to think whether there is a need to even try. I would not be too quick to give up. True, with African countries already beginning to see the negative effects of climate change via droughts and so on, the recent American action is a setback. And of course, African countries initially had their own reservations about the accord. Not a few wondered why they should have to be environment-friendly at the expense of their development; especially as currently developed countries were not similarly cautious. But with research showing a nexus between climate change and increasing incidents of conflict in a number of African countries, there is a growing consensus about the need to be more caring of the Earth we live in. Still, to do this, African countries would require financial and technological support. To this end, the Paris agreement makes substantial provisions. With the American exit, however, also goes its financial commitments. It is also evidence that a Trump presidency would (at least for now) have second-order negative effects for Africa when the issues relate to broader international and multilateral arrangements that Mr Trump is averse to. So it is on the more specific African initiatives that African leaders should hope to influence him on.

Show respect
At the recent G7 summit in Italy, it was all too clear Mr Trump was not enjoying himself. He was particularly irritated by Emmanuel Macron’s (the French president) “macho-diplomacy”: Mr Macron’s overly firm and lingering handshake with Mr Trump at their very first meeting since the former’s inauguration was well-reported. As if determined to rattle the American president or put him to size, Mr Macron also made sure to refer to the incident afterwards as deliberate. That and another, where Mr Macron seem to be moving towards Mr Trump to shake hands, as the G7 leaders and invited guests did their traditional group-walk in front of the press, but at almost the last minute swerved to shake that of Angela Merkel, the German chancellor, must have been a little unnerving for a man known for his fragile ego. Thus, it is very likely that unpleasant experience was at least a secondary motivation for his action on the Paris accord. In his speech announcing the decision, Mr Trump was almost certainly taking aim at Mr Macron when he said: “I was elected to represent the citizens of Pittsburgh, not Paris.” (The Washington Post did a very insightful article on the dynamics leading to Mr Trump’s decision.) At the G7 summit it turns out, one of few instances where Mr Trump seemed to be enjoying himself was when he ran into some of the African delegates: Yemi Osinbajo (Nigeria), Alpha Conde (Guinea), Uhuru Kenyatta (Kenya), Hailemariam Desalegn (Ethiopia) and Akinwumi Adesina (African Development Bank). With deft handling, Mr Trump could become an ally.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/can-africa-win-trump/

Africans can judge themselves

By Rafiq Raji, PhD 

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

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

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

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

Is the developmental bias of Sub-Saharan Africa’s SWFs appropriate?

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 05 Jan 2016. See link viz. http://businessdayonline.com/2016/01/is-the-developmental-bias-of-sub-saharan-africas-swfs-appropriate/ 

Sovereign wealth funds (SWFs) are a relatively recent phenomenon in Sub-Saharan Africa (SSA). Only three SSA countries are members of the International Forum of Sovereign Wealth Funds (IFSWF). Although Botswana set up its own much earlier in 1993, the other two – those of Angola and Nigeria – were operational in 2012. Both have investment policy statements (IPS) and asset allocations with a developmental bias. With infrastructure being a dominant asset class in their portfolios, they could rightly be seen as extra-budgetary structures. These two almost certainly mimic development banks. Their social focus comes with risks. In its simplest form, a sovereign wealth fund is akin to a savings account. A country – often a resource-rich one – decides to save some of its revenue for the future. Ideally, SWFs should provide fiscal relief in times of financial strain. Having only been set up recently, the Nigerian and Angolan SWFs have largely not been able to perform their stabilization function as lower crude oil prices currently weigh significantly on the budgets of their respective governments. Their relatively small size and broad investment mandates may also be why.

Botswana’s Pula Fund currently has US$ 7 billion – 46 percent of gross domestic product (GDP) – assets under management (AUM), based on data from a report by the Harvard Kennedy School in April 2015. It invests only in foreign assets. Almost twenty years later, Nigeria set up its own – Nigeria Sovereign Investment Authority (NSIA) – with a modest US$ 1 billion (0.2 percent of GDP). Nigeria discovered crude oil in 1956, more than ten years before the huge Orapa diamond mine discovery in Botswana. Although Angola’s SWF – Fundo Soberano de Angola (FSDEA) – initially set up with US$ 5 billion (4 percent of GDP) was also established in 2012, a long running civil war made it hitherto difficult for any meaningful development planning. To avoid the mistakes made by Angola and Nigeria, Ghana set up a two-part petroleum fund in 2011 just as it started earning crude oil revenues. The Ghana Stabilization Fund (GSF) and Ghana Heritage Fund (GHF) now have assets under management (AUM) bordering on almost US$ 0.5 billion as at the end of June 2015. Ghana also set up an infrastructure fund – Ghana Infrastructure Investment Fund (GIIF) – in 2015 with US$ 250 million from the proceeds of its US$ 1 billion Eurobond issue in 2014. As it would be investing entirely in domestic infrastructure, the GIIF would probably not qualify as an SWF under IFSWF criteria. The NSIA and FSDEA include infrastructure funds that invest predominantly in their domestic markets, however.

Some experts have raised concerns about the risks associated with SWFs investing in their domestic markets. They relate to whether it fits with their primary stabilization and savings purpose. Corruption is also a major concern. Additionally, there are payoff risks associated with investing in local infrastructure. Most SSA public-private partnership (PPP) infrastructure projects suffer tremendous pushback from local populations. Returns are often low and bankable deals are scarce. Probably in realization of these, the FSDEA has a broader Africa-wide infrastructure mandate. In September 2014, one put some of these concerns to Jose Filomeno de Sousa dos Santos, the chairman of FSDEA and Hon. Mona Helen Quartey, Ghana’s deputy finance minister, at the Chatham House African Sovereign Wealth Funds Conference held in London. While highlighting the social imperative of investing in local infrastructure, Mr dos Santos’ answer included a description of how FSDEA plans to ensure these investments pay off. These were along the lines of how a typical infrastructure fund makes returns and included talk of a social return. Hon. Quartey opined that the infrastructure programmes of the Ghanaian funds would not overlap with those already covered by the national budget. At that conference – perhaps the most comprehensive one to date that focused exclusively on African SWFs – Michael Maduell, the President of the Sovereign Wealth Fund Institute (SWFI), a globally recognized authority on SWFs, actually argued in favour of these views, citing how the Kuwait Investment Authority (KIA) helped rebuild its home country’s infrastructure in the aftermath of the Gulf War. The oft-cited Norwegian SWF also invested heavily in its home country’s oil and gas infrastructure in its early days. So, there are valid arguments on both sides.

There is probably a need for the relatively high infrastructure asset allocations of the NSIA (40 percent) and FSDEA (22 percent) to be reviewed downwards. The United Arab Emirates’ (UAE) Abu Dhabi Investment Authority (ADIA) – one of the best managed SWFs in the world with more than US$ 700 billion AUM – has a 1-5 percent asset allocation to infrastructure. Another fund of the UAE – Mubadala Investment Company – invests domestically and globally in industrial and infrastructure assets, however. From a diversification perspective, it is probably unwise for SWFs to invest domestically. In Nigeria and Angola, lower crude oil prices have exposed the concentration risks in doing so. The political risk is probably not worth the trouble either. There is probably going to be a need for the NSIA and FSDEA to revise their investment policy statements in due course. The Botswanan Pula Fund’s exclusive foreign financial assets focus is ideal, albeit it could probably be more transparent. At 0-4 percent of their respective countries’ GDP, the NSIA and FSDEA are too small to perform their stabilization function. The Nigerian and Angolan governments ought to increase their size. In November 2015, Nigerian authorities announced an additional US$ 250 million capital contribution to the NSIA’s funds from liquefied natural gas export proceeds. They should add more. And if crude oil prices do recover, the governing legislations for these bodies should be reviewed to ensure they are able to perform their stabilization and savings functions more effectively in the future.

Also published on my company’s website on 06 Jan 2016. See link viz. http://macroafricaintelligence.com/2016/01/06/thematic-is-the-developmental-bias-of-sub-saharan-africas-swfs-appropriate/ 

Should African SWFs be investing in local infrastructure?

By Rafiq Raji

Africanswfs

Sovereign wealth funds (SWFs) are all the rage now in Africa. Motivations range from the altruistic to the corrupt. Africa’s oldest SWF is Botswana’s Pula Fund of USD5.7 bn (40% of country’s 2013 GDP), established in November 1993[1]. Almost 20 years later in 2011, Nigeria set up its own with a paltry USD1bn assets under management (AUM), c. 0.2% of its 2013 GDP. Nigeria discovered oil in 1956, more than ten years before the huge Orapa diamond mine discovery in Botswana. Although Angola’s SWF (USD5bn AUM, 4% of 2013 GDP) is also relatively recent, having been set up in 2012, a longrunning civil war made it hitherto difficult for any meaningful development planning. Other African SWFs are Libya’s USD65bn, Algeria’s USD77bn, Gabon’s USD380mn, Mauritania’s USD300mn and Equatorial Guinea’s USD800mn funds[2]. Ghana also set up a two-part petroleum fund in 2011 with an initial USD100mn size, now bordering on circa USD0.5bn or higher when USD250mn from the USD1bn proceeds of its recent (Sept 2014) and third Eurobond are put into a planned infrastructure investment fund in January 2015. While SWFs are not a recent phenomenon – even in Africa as the Botswana case demonstrates, the current debate is about what they really are. This is in light of the relatively broader mandates of the recently set up African ones, especially those of Nigeria, Angola and Ghana. Are they extra-budgetary structures? Are they development banks? Are they conduits for corruption? Do they create a moral hazard? Are they stabilization funds? Should they be investing in local infrastructure without cash payoff prospects? Are they fiscal authorities? Many questions, and there are plenty more. I’ll focus on just one: should they be investing in local infrastructure?

My understanding of what SWFs are is simple. It is akin to a savings account. A country decides to save some of its finite wealth to ensure it remains wealthy for a very long time. It took a while before the oil-rich African countries of Nigeria and Angola decided to set up SWFs. Ghana, whose 2010 oil discoveries are relatively recent, chose to put in place a framework that it hopes would prevent it from wasting its oil wealth like its big neighbor, Nigeria, did. The SWFs that Nigeria, Angola and Ghana (to be launched in January 2015) have set up include infrastructure funds aimed at investing in local infrastructure. I can’t help but wonder about the wisdom in having a supposed nest egg invest in precisely the things it was set up not to spend money on. Of course, investing in infrastructure is a good thing. But that is what budgets are for. The whole point of setting up a savings account is to keep some money away before you spend everything. I doubt you’ll ever find someone who couldn’t find something to spend money on. This is why we save. We save so that we don’t spend ourselves to penury. When a country’s savings account – its SWF – decides to be a “special” current account, then we have a problem. The fundamental question I have about an African SWF (note emphasis on African) investing in local infrastructure is this. Where is the payoff going to come from?

Fundamentally, an SWF – no matter how complex or altruistic its philosophy – is fundamentally an investment fund. It must earn a return. And I doubt very much that the Nigerian, Angolan and Ghanaian SWFs are investing in local infrastructure for its asset class characteristics. Ordinarily, the long-term and cash flow characteristics of infrastructure investments make them suitable for some allocation in the portfolios of SWFs or any long-term horizon fund. If that were the reason for the African sovereign infrastructure funds, it would not be an issue since the return and diversification objectives would be clear. Let us assume that a country’s SWF could find as many local infrastructure projects to invest in, whether directly or indirectly through a privately-led fund. Let us further assume that these projects are properly structured – like they would in a private or PPP arrangement – to ensure investors make a return from tolls, power rates, etc. Wouldn’t this though amount to additional taxation? Essentially, you move money from one pocket to another pocket in the same pair of trousers. And any new money that enters either pocket comes from those who you are supposedly keeping the money for. Whether a government’s revenue is from a natural resource or through direct taxation of its citizen, it is still taxation. Earnings from mineral wealth that are kept in government coffers for spending on the supposed needs of the citizenry, society and the state is money that could have gone directly to citizens of the country. So it is taxation. It is their wealth after all. If a government decides to put some of this wealth away by setting up SWFs, does it then make sense that the returns that build up that wealth come from the same citizens?

The scenario discussed above assumes that these SWFs have a universe of return- earning infrastructure assets to invest in their respective countries. Well, that is not the case. African PPP projects continue to suffer tremendous pushback from local populations. Probably in realization of these, the funds in question extended their infrastructure investing mandates to include other African countries. I put these concerns to Jose Filomeno dos Santos, the chairman of Angola’s SWF and Mona Quartey, Ghana’s deputy finance minister, at the Chatham House African Sovereign Wealth funds conference held in London in September 2014. While highlighting the social imperative of investing in local infrastructure, Mr dos Santos’ answer included a description of how his country’s fund plans to ensure these investments pay off. These were along the lines of how a typical infrastructure fund makes returns and included talk of a social return. Mrs Quartey’s answers were also along the same lines, albeit I got the impression Ghana simply wants to build its infrastructure. I think the reasoning behind the Nigerian case is the same as well. The Santiago principles also got mentioned a lot. My simplest interpretation of their answers (or reasons) goes like this. We don’t have infrastructure, we need to invest in infrastructure. That is all very well. But, is that the job of a sovereign wealth fund?

[1] Institutional Investor’s Sovereign Wealth Centre

[2] Financial Times

Views expressed are mine and not of any institution(s) I may be affiliated with