Tag Archives: Ghana

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).

African central banks decide on rates

By Rafiq Raji, PhD

This week, the US Federal Reserve and Bank of Japan (BoJ) meet to decide interest rates. Both would be announcing their decisions on 21 September. I don’t expect any surprises from the former. In fact, I would be hugely surprised if the Fed does anything this year. Market participants are a little anxious about the BoJ though, as it tests the limits of negative interest rates and could increase the pace of its stimulus programme. African central banks, in Ghana (19 September), Nigeria (20 September), Kenya (20 September) and South Africa (22 September), would also be announcing their decisions during the week. Between them, their economies represent about 60 percent of sub-Saharan Africa GDP. The Bank of Zambia could also announce its long-awaited decision this week – see earlier 9 August 2016 column (“Zambians and their central bank decide“) for my views. Understandably, they are mostly in hold mode. Not Kenya though. If the east African country’s central bank desires to cut rates, it has room to do so now. Kenyan growth should be almost 6 percent this year. And its inflation outlook is quite encouraging. The others, not so much. Nigeria is in recession – and growth would probably contract for the year, amid high and rising inflation. Ghana is still trying to curb longrunning double-digits inflation, albeit growth is a little decent; about 4 percent this year is my reckoning. For South Africa, currently in a tightening cycle as the inflation outlook remains relatively bleak, growth remains sobering; probably zero percent this year, albeit authorities plan to revise their forecasts upward. The South African Reserve Bank may not find it apropos to raise rates at this meeting. But the outlook suggests it may need to before year-end. At least, that is my thinking at the moment. Ahead of the monetary policy decisions, my firm, Macroafricaintel, published its Q4-2016 outlook reports. Below are some of the thoughts.

Kenya – Room for another rate cut
After having to pause policy easing hitherto on resurgent but likely temporary upward inflationary risks, the Central Bank of Kenya (CBK) could, if it wanted to, cut rates by 100 basis points to 9.5 percent, as early as its monetary policy committee (MPC) meeting this week – last time was in May, when the CBK cut rates by 100 basis points to 10.5 percent. I actually think it could ease policy further by another 100 basis points to 8.5 percent before year-end, when inflation could have eased to about 5 percent. Concerns about fuel price increases, which rose in mid-July amid resurgent insecurity, have since subsided or diminished. There is risk however of potential electricity tariff hikes, as geothermal power plants shut down for maintenance have created a supply gap of about 200MW and imports – that from Uganda (more than 90 percent of imports) up 32 percent in the year to July for instance – of diesel-fired and hydro-powered alternatives to fill it are relatively expensive. Chances are the electricity sector regulator would not entertain any new price hike requests this year; especially since the disruptions are not likely to be secular. Never mind that electioneering is already in high gear. Otherwise, the inflation outlook looks good. The Shilling has been relatively stable and should remain so. My view discountenances the downgrade of the currency by Fitch Ratings in mid-July. Why? The US$1.5 billion IMF precautionary facilities have proved quite effective buffers thus far. No reason why they shouldn’t continue to be.

South Africa – 25bps rate hike likely in November, continued pause in September
After barely coming within range in July at 6 percent, inflation would likely accelerate enough to breach the South African Reserve Bank’s (SARB) 6 percent upper bound target from August to March 2017. I anticipate a justifiable 25 basis point tightening to 7.25 percent at the November MPC meeting, the likely peak of the cycle. Thereafter, it is probable the SARB may see room to start easing rates from Q2 2017. My revised inflation forecasts see the headline averaging above 7 percent for the five months to year-end, from 6.8 percent in August to about 8 percent in December. Drought-induced food price increases are expected to continue, as the prospects for improved rains have diminished significantly. Some rand volatility is also expected towards year-end as expectations gyrate over a potential ratings downgrade to junk status by at least one of the global rating agencies, SPGlobalRatings especially. Political uncertainty would perhaps continue to hover over all considerations in any case. Above-inflation wage deals also weigh on the outlook. In September, auto workers agreed an 8-10 percent wage increase over 3 years with employers. Other labour unions are expected to take a cue from this. In the past, the SARB expressed significant worries about how these wage deals could be differential to its rate-setting decisions.

Ghana – Policy easing probably next year
My inflation forecasts suggest the headline may be about 14.1 percent by December, the 2016 trough of a downward trend since June – level then was 18.4 percent – albeit there is likely a slight pick-up in September, to 17.6 percent in my view. The most recent inflation data showed a slight year-on-year acceleration to 16.9 percent in August from 16.7 percent a month earlier. But the monthly pace was negative, -0.6 percent, after an almost 2 percent average run in the year to July. Ordinarily, this would motivate some serious consideration of a potential easing of policy. Bank of Ghana (BoG) governor, Abdul-Nashiru Issahaku, who in my view is decidedly dovish, would jump at the slightest opportunity in any case. Elections in December, a few months away, requires that the BoG exercise the utmost prudence, however. Thus, I think keeping rates as they are for the remainder of the year would be most appropriate. As I see the inflation rate in the high single digits in Q1 2017 and lower for the remainder of that year, averaging at about 7 percent in 2017 from about 17 percent in 2016, an aggressive easing of policy then might be justfied. My current view is that the policy rate (26 percent going into this week’s meeting) could be cut by 300 basis points in each quarter next year, with the end-2017 level still significantly positive in real terms against my inflation forecast of about 6 percent for December 2017.

Nigeria – CBN tightening pause likely for remainder of the year
Inflation has accelerated since the last monetary policy committee (MPC) meeting of the Central Bank of Nigeria (CBN). The annual headline rose to 17.6 percent in August. My forecasts put it higher in coming months, probably ending the year at 18 percent. A weaker naira, food price increases, higher fuel prices, intermittent power shortages are just a few of the factors that I expect would buoy prices up. Manufacturers have already indicated more of their inputs’ continued price increases would now be passed on to consumers more quickly. Foreign-sourced inputs continue to be expensive because foreign exchange remains relatively scarce and dearer. Supply of local alternatives have not kept pace with increased demand. The prices for staples have also gone up, bread for instance, hiked by 20 percent in mid-August. After raising the monetary policy rate (MPR) by 200 basis points to 14 percent in May (after a 100 basis points spike to 12 percent in March), amid backlash from influential members of President Muhammadu Buhari’s administration, there are strong signs the CBN would be reluctant to raise rates further. There have even been threats of cutting interest rates via legislation. A likely economic emergency stabilization bill to be tabled before the legislature this month, I fear, may be used to do just that. The CBN governor, Godwin Emefiele, probably had this at the back of his mind, when he recently signalled all tools within the reach of the CBN, would be used to stimulate the economy. I interpret this to mean the apex bank would resort to more unconventional monetary easing. For instance, plans are afoot to boost the capital base of the government-supported Bank of Agriculture. The Bank of Industry could also get a boost – I suggest this in any case. The Nigerian Export-Import Bank (NEXIM) is another government-backed institution that could use some help. My view remains unchanged: the CBN should focus on its primary mandate of price stability. And it should tighten policy as necessary. But then there is now a need for it to balance that mandate with needed political pragmatism. The CBN needs to be able to set interest rates in the first place. That type of pragmatism, it must also extend to not making the mistake of overstretching itself: the CBN’s capacity to stimulate the economy is overrated. And it should not be easily forgotten that it tried to do just that without much success in the recent past. Banks, the health of which remains concerning (about 15 percent or more of total loans outstanding is either bad or non-performing), are currently undergoing a thorough examination by the CBN. Little things like these – tweaking regulations to ease flows, directing capital to neglected sectors, providing incentives to manufacturers, cleaning up banks and so on – could be more far-reaching and effective than undermining whatever monetary policy credibility it currently has.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/en/african-central-banks-decide-on-rates/

What is Japan’s African game?

By Rafiq Raji, PhD

The 6th Tokyo International Conference on African Development Summit (TICADVI), held on 27-28 August in Nairobi, Kenya, has come and gone. But what did it achieve? Some US$30 billion in aid and investments over the next three years were promised, half of what China pledged late last year at its similarly themed get-together, the Forum on China-Africa Cooperation (FOCAC); also its sixth meeting then. Some 73 memoranda of understanding were also signed, a lot of which were related to infrastructure, power generation especially. Others were in the health, education and expectedly, oil and gas sectors. A friend who attended the summit was particularly excited about some of the products on display at the exhibition along the sidelines of the event, like pay-as-you-go solar power, supplements for maize porridge, and so on.

Like China, Japan is involved in quite a few infrastructure projects in various African countries, albeit to a lesser degree. And Japanese companies already do quite a great deal of business in most of these. Chinese companies increasingly so as well. In sum though, China’s engagement with the continent is more intense and widespread. The Japanese make up for this in other ways. Japanese brands evoke feelings of quality, brilliance and efficiency. From electronics to cars, they are quite ubiquitous across the continent. Despite China’s growing closeness, similar sentiments are barely associated with its brands, if at all. Chinese goods are still considered inferior. Surprisingly, their cheapness barely appeals commensurately. Even so, China’s experience and relatively ample resources may be more germane to African needs. No matter. Both are willing. Sand in the wheels? Both are staunch rivals, albeit they feign some level of maturity in front of their African ‘friends’ – an official Chinese delegation attended TICADVI.

They all want the same thing
When there are numerous suitors for a potential bride, it is often ironic that blessings do not always follow. The one being sought after might overestimate her value, dither, or hope for better opportunities that may never come. Africa is one of many frontiers of interest to these world powers. So for Japan and China, longstanding rivals, whose volatile relationship is writ large by a territorial dispute over eight islands in the East China Sea, Africa provides a vast field for them to spar. Even so, they both really want the same thing: influence. Like China, Japan is also interested in the continent’s mineral resources. Resource-poor Japan seeks fuel for its energy needs, as its nuclear-dominated system have been mostly shut down since the 2011 Fukushima mishap. Both are also counting on African countries to pursue varied agendas at the United Nations and other multilateral institutions. Like the Europeans and Americans before them, Japan and China are also building military bases on the continent. Simply put, they are pursuing their own interests. Knowing this could be a blessing for African countries, whose negotiating positions are enhanced as a result. The temptation to pitch one against the other should be resisted, however. Instead, African countries should articulate what their development needs are and then go with the partner that best ensures their fulfilment. Japan is not offering as much money as China is. But it has one advantage over the latter. It is more technologically advanced. Its projects are executed with the highest standards and are delivered on time. And they last. China, on the other hand, knows only too well how steep the road to development can be. It is likely a better teacher on how to traverse that road than Japan could ever be at the moment. There need not be a dilemma in any case. Both can help.

Accept only the help that liberates you
As the Japanese prime minister, Shinzo Abe, was engaged in his charm offensive – the TICAD conference was being held on African soil for the first time – Chinese officials were quick to deride his efforts. It was almost the same way the Americans were all too quick to point out how the Chinese then newfound interest in Africa was going to be similarly or more exploitative. Truth is, these supposed development partners go into these relationships often because they already see more advantages for themselves. Or at least, they see the costs and benefits as evenly balanced – not in the African case: whether the partner is China, Japan, America or Europe, the advantages are tilted towards the other side. And the toast is always the same: we want to help. That is all very well. What African countries need the most, in addition to infrastructure, is technology and skills transfer. In doing this though, the situation can no longer be as it is currently, whereby these so-called partners set up businesses on the continent, bring their own staff, integrate little and barely mask their disdain. The scorecards cannot continue to be about how many billions of dollars our partners’ supposed benevolence allowed for each time. Thankfully, more energy at these summits is now being devoted towards changing this lopsided paradigm.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/en/what-is-japans-african-game/ 

Africa should renegotiate EPAs for manufactures’ trade parity (1)

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 09 Feb 2016. See link viz. http://businessdayonline.com/2016/02/africa-should-renegotiate-epas-for-manufactures-trade-parity-1/

African countries should only allow duty-free manufactured goods’ imports for the same amount of manufactured goods that they export. Customs duties should apply to trade in excess of this threshold. Reciprocity by Africa’s trading partners would be just as well. Ultimately, this would incentivize local production as Africa’s more industrialized trading partners realize the exports market for their manufactured goods would be dependent on the destined African country’s industrial progress. In tandem, African authorities would also need to ensure that local alternatives are cheaper and readily available. In my view, this is the simple but necessary change that African, Caribbean and Pacific (ACP) countries must insist be made to the Economic Partnership Agreements (EPAs) between them and the European Union (EU). My focus would be on the EPA between the EU and the West African regional bloc. Nigeria is yet to sign the most recently revised EPA. So, it still has a chance to secure concessions from the EU. In his speech to the EU parliament on 3 February 2016, Nigeria’s President Muhammadu Buhari highlighted concerns of local manufacturers about the agreement. These concerns were initially raised during the administration of President Goodluck Jonathan. On 23 June 2014, I attended an event in London hosted by the Financial Times and the Nigerian Customs Service themed “Business in Nigeria: Trade facilitation for Africa’s business hub.” When asked about the status of the EPA negotiations at the event, the then Nigerian trade and industry minister, Mr Olusegun Aganga, said Nigeria would not sign an EPA that potentially harms its industrial development. More than two weeks after, Heads of State of member countries of the Economic Community of West African States (ECOWAS) endorsed the revised EPA that – in the words of the communiqué issued – “has taken due account of the technical concerns raised.” Although the language of the communiqué was somewhat vague, I assumed that perhaps ECOWAS had succeeded in securing concessions on the concerns of its member countries. Not until the Nigerian legislature brought the matter to fore in January 2016 did I realize Nigeria’s concerns had not been addressed. At this time, a committee of Nigeria’s lower house of parliament is reviewing the EPA and should present its findings before the end of February. There is tremendous pressure on Nigerian authorities to sign the EPA. They should not. Not yet.

The Cotonou Agreement reached in February 2000 is actually a marked improvement from the earlier Lome and Yaounde Conventions. The EPA in question is the third revision of the Cotonou Agreement. Earlier revisions were in 2005 and 2010. There is a consensus about the failure of these agreements to achieve their development objectives. The European Commission admitted as much, saying EPAs “failed to boost local economies and stimulate growth in African, Caribbean and Pacific (ACP) countries.” During the period of the four Lome Conventions – which subsisted between 1975 and 2000, exports to the EU from ACP countries actually declined. Between 1978-2002, ACP exports to the EU declined from 7 percent to 3 percent. There has not been much improvement since the Cotonou Agreement either, as trade in manufactures remains significantly tilted in favour of the EU. Not that this is entirely surprising. Fifteen years after the Cotonou Agreement, only 15.5 percent of total ACP exports to the EU were manufactured goods. In the same year, 69 percent of total EU exports to ACP countries were manufactures. The manufactures’ trade deficit is much more staggering for the ECOWAS region. In 2014, manufactures accounted for 3.3 percent of total exports to the EU by the ECOWAS region. Goods manufactured in the EU were almost 50% of its total exports to West Africa in the same year. The revised EPAs – that would subsist for at least another 5 years (2015-19) before they can be revised again – are supposedly aimed at reversing this trend. Still, reservations that these new EPAs would achieve their stated goals of trade development, sustainable growth and poverty reduction remain. This is because the revised EPAs still have provisions that are potentially harmful to local industries in ACP countries. A major issue is the very short transitional period – five years in the West African case – before European goods would enjoy free movement in subject countries. It does not require a stroke of genius to know that these arrangements would be detrimental to Africa’s industrialization.

Why did Nigerian authorities wait till after the negotiations to raise their concerns about the revised EPA? Negotiations between the EU and the West African regional bloc were closed on 6 February 2014 and ECOWAS Heads of State endorsed it on 10 July 2014. I have always wondered about the recurring incidence of sub-optimal negotiation outcomes by African countries. At the Financial Times Africa Summit in October 2014, I put these concerns to Dr. Donald Kabureka – who was then the President of the African Development Bank (AfDB) and keynote speaker at the event – wondering if he thought for instance that Ghana’s petroleum fiscal regime was optimal. My question was more pointed. Did it make sense that Ghana was borrowing money abroad at about the same time that it was already producing crude oil? Ghana’s Jubilee oil field started production in late 2010. Unlike most crude oil producers who have Production Sharing Agreements (PSAs) with their partners, Ghana opted for the less lucrative Royalty Tax System (RTS) for its Jubilee oil field. Much more worrying is the fact that the Ghana National Petroleum Corporation has only 13.64 percent equity in the Jubilee oil field – the Nigerian National Petroleum Corporation has a 60 percent ownership in five of its six joint ventures with foreign oil companies. After much criticism, however, Ghanaian authorities sought better terms in subsequent contracts. A paper published in the Ghana Policy Journal in December 2010 – “An evaluation of Ghana’s petroleum fiscal regime” – authored by Joe Amoako-Tuffour and Joyce Owusu-Ayim, shows only 38-50 percent of crude oil revenue accrued to the Ghanaian government, calculated based on $65 per barrel of oil – the average brent crude oil price in 2011-14 was $108. When compared with Nigeria’s 64-70 percent, Angola’s 64 percent and Cameroon’s 74-78 percent, it is sub-optimal. Not surprisingly, Dr. Kabureka tactfully avoided taking on Ghana specifically but highlighted how through the African Legal Support Facility (ALSF), the AfDB assists African governments to secure optimal outcomes from negotiations with partners. I do not know if the ALSF was involved in the Ghanaian oil negotiations. However, trade negotiations do not seem to be a priority area for the ALSF, based on its literature. As most trade-related technical assistance (TRTA) is sponsored by developed countries whose interests it serve that such capacity remain limited in the subject countries, the ALSF should probably prioritize trade-related capacity building (TRCB) and TRTA as well. The concerns raised by the Nigerian government on the EPA – and some ACP countries hitherto – is evidence of limited negotiating capacity. Still, even when a government fails to negotiate properly, it should not sign a document if it later realizes its error. It would be most unfortunate if the Nigerian government signs the EPA in its current form.

Also published on my company’s website on 10 Feb 2016. See link viz. http://macroafricaintelligence.com/2016/02/10/thematic-africa-should-renegotiate-epas-for-manufactures-trade-parity-1/ 

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


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