Tag Archives: Economic Freedom

No need for Buhari emergency powers

By Rafiq Raji, PhD

Protect the old man from himself
Good men are rare. Leaders that are good men are scantier, more so in Africa – an old teacher of mine would disagree: she doesn’t think there is a dichotomy between leadership and goodness. Leaders are good men. I did wonder aloud though where she’d put those different shades of grey, that matters leaders sometimes have to grapple with, often take. A country of mixed fortunes, even during the best of times, Nigeria this time has the rather unusual good fortune of having a leader that is at least honest. Muhammadu Buhari means well for Nigeria. He has good intentions certainly. But good men are also human. There is a storied saying: ‘the road to hell is paved with good intentions.’ I have read varied versions of a likely ‘Emergency Economic Stabilisation Bill 2016.’ There is nothing in there that cannot be legislated into laws. Put simply, it is not necessary to grant President Buhari additional powers that he could abuse. Mr Buhari is likely nostalgic, by his own not so subtle admission in any case, of when he could simply issue decrees. One would not be totally wrong if one thought there is a part of him that probably craves the wide-ranging powers that an economic emergency declaration would enable him wield. This is no trifling matter. In my column of 16 August 2016 (“You are hereby directed to cut interest rates. Really?”), I highlighted the unabashed disposition of one of Mr Buhari’s closest eggheads, Nasir El-Rufai, governor of a northern state bordering the Nigerian capital, towards cutting interest rates via legislation. Shortly after, the Central Bank of Nigeria (CBN) directed that banks should allocate 60 percent of their foreign exchange to manufacturing firms. The Nigerian leader’s preference for a strong naira is also well-known. And now there is talk of a bill that could grant the executive branch the very powers needed to do all these without prior legislative oversight or approval. Bear in mind, the highly controversial ‘War Against Indiscipline’ policy of the 1980s military dictatorship of Mr Buhari is set for a rebirth. Surely, it cannot be too difficult to see how these sequence of events is not necessarily coincidental.

Red herring is a fish too
There is a practice in government: when it is about to implement a potentially controversial policy, a media leak is engineered to test potential reactions. If the public backlash is deemed manageable, the policy gets the nod. A similarly well-known legislative practice is to bury potentially controversial laws beneath a deluge of minutiae in supposedly mundane laws. Thus, the fine print of any potential economic emergency bill should be thoroughly scrutinized; clause by clause. Nigerians must come out forcefully against any attempt at turning Mr Buhari’s democratic mandate into a dictatorship. Especially because this time, those who should know, prominent economists and the organised private sector, have chosen to hold brief for the administration; probably in good faith. Even so, they are mistaken. And to think that even as they know the factors – cronyism, nepotism, tribalism, rent-seeking, corruption, and sometimes just plain incompetence – that made past economic emergency measures fail, remain or have worsened, they would still elect to think that things could be any different this time, is a little depressing.

There is an American parallel. Then US treasury secretary Henry Paulson introduced a bill (with the exact same title) during the 2008 global financial crisis. Thing is, theirs was mostly for extra-budgetary spending. Not at first. Mr Paulson’s original meagre 3-page proposal would have granted him a carte blanche to spend as much as US$500 billion to purchase distressed bank assets without prior legislative appropriation. He would also have been immune from legislative and judicial scrutiny. Naturally enough, US lawmakers shut it down. Although what was eventually passed did allow for unprecedented extra-budgetary spending, about US$700 billion for a troubled assets relief programme (TARP), it made sure to require legislative oversight. What the Nigerian government is purportedly about to propose is even more far-reaching. And yet the circumstances are not nearly as dire. Some laws, it goes, designed precisely to guard against untoward executive discretion, are to be suspended for the duration of the planned emergency. Why not simply amend the laws? More puzzling, most of the recommendations of the purported bill that were let slip to the media, are currently within the powers of the executive branch to implement. Visa issuance reforms do not require legislative approval. Reducing the time it takes to clear goods at the ports is totally within the capacity and powers of the port authorities. The Nigerian president can, with the stroke of a pen, instruct the myriad agencies causing bottlenecks at the ports to take a hike. Physical inspection of goods, which increases the clearing time for goods at the ports to days, could be eliminated by simply buying and installing scanners. And how is it that such emergency spending – if haste were key – couldn’t be speedily appropriated for via a supplementary budget bill?

Reform for the long-run
More importantly, the advantage of dire circumstances is that you are able to get buy-in much more easily than during normal times. The Land Use Act, which grants the government an undeserved right to all land and thus stymies investment, needs to be reviewed. The Petroleum Industry Bill, dithering on which has led to an exodus of capital from the sector, needs to be passed with dispatch. Double taxation needs to be eliminated. Multiple agency inspections at the ports need to be abolished. There should not be preferential access to foreign exchange at the central bank. Authorities should take advantage of the challenging but propitious times to enact or review laws needed to put the economy on a sustainable growth path. Not short-term emergency measures. My fear is that the leadership of the legislature may be open to a deal with the executive, in light of its legal troubles. This would be a betrayal. So if it finds at any time that its resolve may waver, it should take heed in the saying that no good deed goes unpunished.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz.  http://businessdayonline.com/no-need-for-buhari-emergency-powers/

Brexit risks for Africa are overblown

By Rafiq Raji, PhD

For Africa and the United Kingdom, I choose to be optimistic.

Scare-mongering can stop now, the vote is over
I do not share the pessimism expressed by some on the potential negative impact of Brexit – term used to refer to the now almost certain exit of the United Kingdom from the European Union – on African countries. It is important to distinguish between short-term and long-term impacts. Credible risks – if they materialize – are likely short-term. Once market participants get over the shock, things should get back to normal. Market participants were surprised by Brexit. UK pollsters got it wrong. Again. Considering the margin by which the ‘leave’ side won, it is hard to believe that robust polling would have showed a ‘too close to call’ reading. Brexit-induced market volatility may pass sooner than people think, in my view. That is, after market participants get over the angst of being blind-sided. The South African Rand – the worst-hit African currency in the aftermath of the Brexit vote – is typically vulnerable when there are market jitters. And when negative domestic events – bizarrely intermittent – don’t cause some trouble, happenings in distant lands – a la Brexit – almost always come about to disrupt things. But if a long-term view is taken, it is not likely that increased sovereignty for the United Kingdom would be disadvantageous for African countries, the longstanding primary focus of UK foreign policy – or influence. There is ample time for both sides to calmly negotiate, once emotions become subdued and rationality takes over.

Brexit is an opportunity to rebalance the UK economy
Former Rolls Royce – a British carmaker – chief executive, John Rose, wrote once of the unbalanced ‘post-industrial’ UK economy for The Economist. In the article (“Made in Britain”), he recalls how an eminent British industrialist at a conference he was attending was introduced to a German audience as follows: “Our speaker is now going to explain how you run an economy based on real estate.” Sir John Rose made a case then for more British high value-added manufacturing. Brexit is an opportunity for such issues to get the type of attention they deserve. Also, even as Brexit negotiations could potentially get nasty, London’s place as a global financial centre in continental Europe would be hard to replace in a hurry. Still, some global banks have started to make contingency plans, reportedly transferring some jobs to Dublin, Paris, and Frankfurt. They are probably being hasty. It is still possible that the UK would be allowed some form of nuanced access to the single EU market for some services, probably just enough for financial institutions to be able to continue doing their EU-related business from London. So, upcoming Brexit negotiations may still tilt in banks’ favour. The view that a hard EU stance would be a crucial signaling tactic to dissuade other potential ‘Brexiters’ in the EU is short-sighted. I think the EU would be pragmatic.

Domestic factors matter more for African giants
It is the actions of authorities in Nigeria and South Africa – Africa’s largest economies – that matter more for investors. Structural imbalances in both economies have nothing to do with Brexit. And even portfolio inflows into these countries – expected by some to slow due to volatility and uncertainty in global markets owing to Brexit – would depend on the actions of their monetary authorities. Both countries clearly need to remain on a policy tightening path. And in the Nigerian case, if authorities follow through on ongoing structural reforms, the investment case for that country is hard to refute. Morever, capital seeking African assets are now more diversified. Long-term investment plays for asset classes like infrastructure are likely to continue unabated, in my view. The African Development Bank, Africa Finance Corporation and other African infrastucture or development-focused financial institutions are not going to cut back plans just because the UK decided it wanted more sovereignty over its own affairs. Furthermore, fears about a potential reduction in African diaspora remittances may be misplaced. Actually, I think Africans – who now see an increasingly insular West – may begin to build closer ties with their home countries.

Recessions don’t last forever
UK recession fears are the main argument behind negative African Brexit impact fears. Pray tell, do recessions last forever? The key question is whether Brexit would have a long-term negative impact on African economies. It is hardly robust to base an assessment of this on a potential UK recession; which would likely pass – if it happens – within the two years or so that Brexit negotiations and modalities are expected to be completed. Fears that Britons would buy less Kenyan flowers – expressed no less by the Kenya Flower Council – seem defeatist to me. Say that happens during a UK recession that everyone seems to think would occur this year, what about afterwards? I think things would either go back to normal or improve. Morever, there are other markets that could be explored.

British outwardness was never about the EU
There is a need to distinguish between the increasing insularity of some Britons – mostly the white, less educated and older ones, borne out of fears about immigration, and the likely rational decision-making of UK authorities. Whoever succeeds David Cameron as prime minister is not likely to jeopardize the advantages that the UK currently enjoys in global trade and finance. Now free from its EU obligations, it would likely ramp up its foreign policy reach through The Commonwealth – a multinational association of fifty-three member states formally under British colonization, which it controls. A likely renewed British Commonwealth focus would be an additional positive for African countries’ trade. Thus, I am sceptical of the view that the UK would need to renegotiate each and every trade deal it agreed to under the aegis of the EU, especially those with African countries. Brexiters are not dumb. A simple conversion would do.

Also published in my BusinessDay newspaper back-page column. See link viz. http://businessdayonline.com/2016/06/brexit-risks-for-africa-are-overblown/

Where is Rissik Street? #Inauguration2014, #Zuma, #Africa

Where is Rissik Street? I keep walking downtown Braamfontein on my way to the SARS (South African Revenue Service) office on Rissik street in Johannesburg, South Africa. It is the 26th of February 2014, budget day in South Africa. The Treasury website indicated one could procure a copy of the 2014 budget review from their office. So, where the heck is Rissik street? Okay, there is Loveday Street, turn left? No, that’s De Korte Street? right? Maybe you should ask someone. Who do I ask? I did ask someone earlier back when I was still on Jorissen street. Okay, that guy over there looks approachable. “Hey bra, I’m looking for Rissik Street”. “Rissik Street, Rissik Street,….” The good Samaritan checks his phone, repeating to himself aloud “Rissik Street, Rissik street…” Hmmn I think you’d have to go down Mandela bridge and turn left. Cheers man!” So, I thank him with a smile thinking “over Mandela bridge…is that not where the garage is? No, I’m going to keep walking and maybe ask someone else” As I continue walking uphill (or is it downhill?) on Jorissen Street (which street again?), I thought to myself why the heck do I want a copy of South Africa’s 2014 budget while on vacation despite having contacted the flu and barely able to walk straight.

I first came to South Africa in January 2011 to start my doctoral degree at the University of the Witwatersrand in Johannesburg. As is usually the case for first-comers, I stayed at a Bed and Breakfast recommended by one of the staffers at Wits Business School. A dozen trips since, I have to tell you: South Africa is a beautiful country! But what has that got to do with my braving my flu shivers to go far off Braamfontein from Auckland Park to go get a copy of the 2014 budget review? The reason is simple. On my visit this time around, I stayed at the same B&D I first lodged in when I visited the country for the first time in 2011. Something struck me as I met the familiar gazes and exchanged the typical warm African pleasantries. Those eyes. They were the same people who worked there those four years ago. Their economic status hadn’t changed. Their social status hadn’t changed. They were neither thinner nor had they added weight. They were exactly as they were those four years ago! And they are the lucky ones!

So why did I want a copy of the budget? Simple! I wanted to know how much the South African government was going to spend on education. I wanted to know how much was going to be spent on scholarships, education grants, et cetera. For you see, the circumstances of those friends of mine at that B&B likely didn’t change because there was nothing else they could do. They have basic education and were born during the apartheid era. And they are the fortunate few; they have a steady job! For such people, the only hope they have is for their children to have an education, get a plum job and perchance lift the other members of the family out of poverty. An education, then a job, and perhaps some dignity at last. If only it were that simple!

It all boils down to a simple phrase: Economic freedom! (No entity has exclusivity on that phrase by the way). That is what us Africans do not yet have enough of. Not that all of us are not economically constrained in one way or another. Yes, including the Bill Gates and Warren Buffets of this world. It is the degree that differs. Am I economically free if I’m able to afford three meals a day? Is that enough? Am I economically free if I’m able to, in addition to feeding, send my children to school? Is that enough? Or is it when I’m able to go on vacations to exotic lands? Enough? Is it when I have a car? OK, what type of car? A German car? Free? A house? One house? Two? What is economic freedom? Is it when I’m able to spend more than one dollar a day? And by the way, what is that? One dollar? You couldn’t buy a decent meal on one dollar in some African cities talk less in chic Johannesburg.

So yes, the budget! My trek was not in vain it turns out. There would be increased spending on education initiatives for all South Africans (mostly blacks you see). Maybe more in the future? Quite likely. But then comes the question of the appropriate conditions for acquiring knowledge. If most live in ramshackle sheds, sometimes a dozen people in a single room by some accounts, is it likely I’ll be able to do any amount of decent study under such conditions? Never mind the noise coming from outside as rival gangs throw “jibes” at each other. And o yes, my beautiful African sister is sleeping. Thank God! It is late. She mustn’t stay out late, you see. The odds against the black population in South Africa is unbelievably daunting!

I use South Africa as an example because it is the most advanced country on the African continent. It has a world class financial market, the infrastructure is superb and it has huge knowledge capital (mostly white-owned). But that is not a bad thing, at all. The literature on development in Africa is awash with talk of skills transfer and all that good stuff. As knowledge resides in the brains of human beings, well they have to want to come over to the continent in the first place before any transfer can take place. In the case of South Africa, that is not a challenge! They already live there! You see, the path to economic freedom as Mandela realized early on requires the joint efforts of both black and white South Africans! Incidentally, the case is no different in the rest of Africa. The majority of African SMEs with capital in excess of one million US dollars (USD1mn) is owned by resident but non-black Africans.

So you see, the problem with Africa; two words: Knowledge and Leadership! We have a deficit of knowledge and leadership in Africa! So, how did we get here? Surely, a lot of us go to school. A lot of Africans are to be found in the top schools around the world. Most of our leaders went to Oxbridge, Ivy League schools and a lot of Africans are (and have been) exemplary leaders in business, politics, and international relations. Well, I’ll say it. The President of the United States is African! The CEO of McDonalds is African! The United Nations has had two African Secretaries-General! (or is it Secretary-Generals? knock on the head). The City in London and Wall Street in New York have many African Managing Directors (and some CEOs?). Thus, the problem is not us as a people. It has to be something else. The environment? Our culture? Religion? Surely, something must be said for why Africans thrive in distant lands and yet flounder in their native countries.

Ah yes, the budget! It is no matter really. All sides of the divide know they have to address the poverty of black South Africans, you see. And indeed all Africans! They only differ on how to go about it. Indigenization? Black Empowerment? Nationalization? Land reforms? Capitalism? Socio-capitalism? Africapitalism? All fancy words, if you ask me. The immediate and feasible solution is education and leadership by all Africans! Leadership is a fancy word as well it turns out. Well, it means labour leaders should think about the consequences of their actions on job creation when they decide to go on strikes. It means African leaders should be tough in pre-exploration negotiations of natural resources in their countries. It means we should not throw trash out of our car windows as if some miracle would pick them up the street for us. It means we shouldn’t attend parties organized by public officials when clearly they were organized from the proceeds of corruption. It means we shouldn’t so much as exchange pleasantries with a corrupt public official. It means we would vote for the person with the best ideas. It means we’d pay our taxes. It means we’d not jump the queue. It means we wouldn’t cheat in exams. It means we won’t drive against traffic. Leadership, it turns out, would be required of all of us. Not just our rosy-cheeked leaders. They all have shiny and rosy cheeks! I’m trying to remember any of our leaders without comfort written all over them. Okay, one President has a steely, hard look.

Irrespective of their troubles, however, Black South Africans still have it better than most Africans. Their government provides them all sorts of social assistance. You only need to visit OR Tambo International Airport to see how many citizens of other African countries visit South Africa on a daily basis. So, what about Nigeria? My dear country. Soon perhaps to become the biggest economy in Sub-Saharan Africa (My South African friends give me a scowl anytime I throw that jibe at them). Well, size is not enough. It reminds me of a scene I witnessed at OR Tambo on one of my trips. The immigration officer asked these pretty white South African girls (they caught my eye, you see) why the heck they were going to Lagos. The damsels simply looked at each smiling (laughing actually). Today, a lot of South African capital is making its way into Nigeria and increasingly other African countries. Those smart South Africans now realize there is increasingly more gold to be earned by looking up north! Incidentally, this is also one of the reasons I am optimistic about Africa. This is because it is not only South African capital that has been making the rounds. Nigerian capital has been spreading across the continent as well.

So yes, Nigeria. We are hosting the World Economic Forum for Africa in May 2014. And guess what, they are all going to talk about financial inclusion. If you ask me, I’ll just say fill the panels with Kenyans! There is a lot they could teach the rest of Africa about financial inclusion. And by the way, any bank in Africa thinking of opening more branches is likely not being strategic. The key to increasing financial inclusion in Africa is through mobile devices. It reminds me of the story of a major African telecom firm’s move into Nigeria. The African and international business community thought they had to be mad! More than half the population lives on less than a dollar a day, how are they going to be able to afford a mobile phone? They said. It turns out the informal economy may be larger than the data suggests. Don’t take my word for it. Go and check the income statements of the major African telecom firms. And mind you, all the revenue is cash!

So, what about Rissik Street? It turns out the SARS office was at the very end (or beginning?) of Rissik Street. It is more like the story of Africa and its development. The beginning and end (up to this point in our history) of our development journey hasn’t changed much. We are still poor. We still don’t produce much. We are still dependent on foreigners for aid. Asian tigers once our contemporaries still give us aid. It is a sad narrative. But it doesn’t have to remain so. As global capital becomes more spread out, striding east and west, in there lies a great opportunity for Africa. With knowledge and leadership, we can change our fortunes if we choose. It starts with you and I.