Tag Archives: World Economic Forum

Buhari and Zuma should speak cautiously on the economy

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 26 Jan 2016. See link viz. http://businessdayonline.com/2016/01/buhari-and-zuma-should-speak-cautiously-on-the-economy/

Nigeria’s President Muhammadu Buhari should probably not make comments about monetary policy. His public declaration of his aversion to naira devaluation in late December 2015 made it quite clear the Central Bank of Nigeria (CBN) was no longer independent. Not that this was news. But at least, in the past, some pretensions were made about the CBN being independent. Under former governors, Charles Soludo and Sanusi Lamido Sanusi, the CBN became a significant power centre, a development that pleased investors but outraged the incumbent presidents. So, even when the right thing is eventually done – that is, devalue the naira and ease foreign exchange restrictions – investors are still going to wonder whether monetary policy decisions are now really taken at monetary policy committee (MPC) meetings or at the State House. This logic has some basis. There is little doubt that were President Buhari to order a naira devaluation this moment, CBN governor Godwin Emefiele would not hesitate to do as he is told. This is not healthy. And it has to change. Most of the Buhari administration’s economic goals – diversify the economy, reduce import-dependence, et cetera – can be easily done by simply tweaking one variable: the naira. Were it allowed to find its equilibrium level, in this case the price at which demand for foreign exchange would reduce enough to equal scarce supply, Nigerians would adjust their tastes for foreign goods with dispatch. Local manufacturers would have no choice but race to meet the subsequent increased demand.

A major concern for President Buhari on naira devaluation is how it potentially increases the costs of servicing government debt, based on his comments in December 2015. A depreciating currency almost always results in higher inflation for an import-dependent economy. As interest rates compensate for price risk, borrowing costs tend to follow in tandem; albeit higher interest rates reduce the discounted value of one’s indebtedness. In the Nigerian case, this concern is needless. Nigeria earns crude oil revenue in US dollars. It can service its foreign debt using those earnings. For its naira-denominated debt, its position is better enhanced if the naira is appropriately priced as it gets more value from its dollar revenue. For instance, the CBN sold about $16.4 billion to banks and bureaux de change (BDC) operators between March 2015 and December 2015 at an average rate of 197 naira, totaling 3.2 trillion naira. This is 16 percent less than the 3.7 trillion naira it could have earned had it sold the dollar at the average BDC rate of 226 naira during the period, which is actually lower than the then widely believed equilibrium rate of 250 naira. The 500 billion naira loss is enough to fund the planned social assistance programme for 2016. In an article last week, Nigeria’s finance minister signaled the likely devaluation of the naira in the not too distant future, perhaps at this week’s MPC meeting. Still, the likely steady devaluation approach would probably be inadequate. If Nigerian authorities are really determined to diversify the economy and reduce the country’s import dependence for the most basic commodities, it must devalue the naira sharply.

The monetary policy committee of the CBN meets on 25-26 January and is expected to keep its policy rate unchanged at 11 percent, based on the consensus view of analysts. That consensus view is not data-dependent, however. Analysts have simply come to the conclusion that the CBN is deliberately dovish, a point Governor Emefiele made only too clear when the MPC took the counterintuitive decision to actually cut interest rates in November 2015 at a time that prices are rising. With expectations that inflation would continue to rise – and mostly above 9 percent, the upper end of the CBN’s inflation target band – for most of 2016, the data-dependent view would be to actually tighten monetary policy. The CBN’s view is that the economy needs to be stimulated hence its expansionary stance. With inevitable naira devaluation imminent, the risk of inflation rising above 10 percent in Q2 2016 is significant. Clearly, were the CBN not to act to stem these price pressures, the headline could be higher. Considering that the CBN has not been perturbed by inflation being above 9 percent since June 2015, inflation targeting is probably no longer a priority for the Bank; at least, not within the current official target band. This haphazard and unpredictable manner of conducting monetary policy is injurious to the economy.

The MPC of the South African Reserve Bank (SARB) also meets this week, on 26-28 January. It would be taking place a few days after the World Economic Forum (WEF) meeting in Davos, Switzerland. The SARB’s MPC members are probably glad President Jacob Zuma did not appear at an earlier scheduled WEF panel event hosted by a South African media organization. After what analysts and investors believe was an attempt by President Zuma to unduly influence the South African Treasury by replacing the widely respected finance minister, Nhlanhla Nene with an inexperienced hand, mainstream South African media has been unforgiving. In the aftermath of that event, the Johannesburg Stock Exchange lost $10.2 billion in just two days. President Zuma’s subsequent indifference to the enormity of his error – even after he rescinded his decision and brought in a “new old hand,” Pravin Gordhan, as finance minister – also fuelled a lot of investor concern. The South African rand depreciated by as much as 9 percent during the first trading day (11 January) after he remarked that markets overreacted to his decision. Had President Zuma appeared on the panel, he would likely have been asked about this and he probably would have answered in a similarly defensive manner. This would have riled investors further, an occurrence he and his officials are keen to avoid. The SARB would have had little choice but to hike rates by 50bps or more had that happened. There are analysts who still believe the SARB may actually tighten rates as much this month. This is based on the outlook that inflation would likely rise above 6 percent – the upper bound of the SARB’s target band – in Q1, as the rand likely remains weak and drought effects become more acute. However, with rating agencies all but decided on a likely downgrade of South Africa to junk status should growth deteriorate further, it is unlikely the SARB would not want to help keep growth up to the extent that it could. So even as the rand has deteriorated significantly since the New Year, the view one takes is that the SARB would likely only hike by 25bps to 6.5 percent at its MPC meeting this month. In an interview at Davos, SARB governor Lesetja Kganyago alluded to this possibility. Markets reacted sharply afterwards, however.

Bottom-line, President Buhari of Nigeria and President Zuma of South Africa should probably rely more on guidance from their officials before making statements on the economy. Recent comments by Nigeria’s Vice President Yemi Osinbajo at Davos – who arrived late to the WEF session that President Zuma excused himself from, indicative of a last-minute invitation – suggest there has been a change in tact. When talking about the CBN these days, Vice-President Osinbajo and finance minister Kemi Adeosun now ensure to point out – if only publicly – that their comments on monetary policy are based on feedback from the central bank. It is not unlikely that President Buhari was made to realize his earlier error. Although the South African media raised their voices again to criticize President Zuma for not attending the main event he was scheduled for at Davos, one’s take is that he probably decided to take the advice of his officials who must have reasoned it would be safer if his appearances were in controlled environments and his speeches scripted. Instead, finance minister Pravin Gordhan did an issues briefing on the South African economic outlook, which to one’s mind was reassuring, frank and very calming. And truth be told, Pravin Gordhan would only succeed as finance minister to the extent that he gets support from his principal, albeit he is probably now the most powerful finance minister South Africa would ever have.

Also published on my company’s website on 27 Jan 2016. See link viz. http://macroafricaintelligence.com/2016/01/27/thematic-buhari-and-zuma-should-speak-cautiously-on-the-economy/








Africa’s challenges remain the same

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 19 Jan 2016. See link viz. http://businessdayonline.com/2016/01/africas-challenges-remain-the-same-rafiq-raji/ 

The World Economic Forum Annual Meeting for 2016 takes place this week on 20-23 January. Compared to meetings of the last two years, it would be somewhat Africa lite. The Africa agenda then was positive and growth-focused. There was a lot of optimism. Not this time. Frankly, this year’s meeting is not likely to be as exciting. After the initial good cheer at the beginning of last year, 2015 turned out to be very poor for the continent. Lower commodity prices and China’s economic slowdown unraveled the Africa Rising narrative. While the long-term potentials of the continent remain, there has been a change in views – mostly to the downside – on how quickly the continent can overcome its challenges and emerge richer. Africa’s next challenge, the title of one of the scheduled sessions at the meeting this year, has President Zuma of South Africa and Ethiopia’s Prime Minister Hailemariam Desalegn as discussants. The notion of a next challenge for Africa is deep with meaning if not ironic. Insecurity, poverty, corruption, poor governance, and power shortages have been the topics of conferences on Africa for decades. Yet they persist. The recurring regression is certainly frustrating even for the continent’s ardent supporters.

Africa’s next challenge is how to overcome its current challenges. The old ones are the new ones. Only now, countries like South Africa hitherto seen as relatively better off seem to currently suffer almost all of the challenges of its poorer peers. Corruption, poor governance, and power shortages are now as problematic in South Africa as they are in Nigeria and the rest of the continent. In the South African case, negative perceptions about its leadership add to headwinds. President Zuma would be attending this year’s meeting tainted by corruption allegations and questions about his ability to govern amid student protests, imminent labour strife, a battered currency and the potential downgrade of his country’s credit ratings to junk status. Thus, Team SA would dearly hope that President Zuma engages in a charm offensive at Davos to avoid solidifying growing domestic and international investor antipathy towards his presidency. Sobriety might be the best approach. In recent media statements after his botched cabinet shake-up in December 2015, President Zuma did not seem sobered by the damage his actions have caused his country’s economy. It is certainly now very hard to persuade investors against worrying about the deep-rooted structural issues that require urgent resolution in South Africa. In the Ethiopian case, drought and political repression would be in focus. These issues were and still are the challenges facing modern Ethiopia. These recent and ongoing crises in the countries of the panelists would be hard to gloss over. They are real and typify the regression that supports the irony of a supposed next challenge for Africa.

Nigeria and Kenya do not feature prominently on the agenda at Davos this year, based on the published programme. With the countries planning Eurobonds in the first quarter of 2016, discussions around the costs of this type of financing – and how investors have wizened up to the risks involved – would not be so obscure. Nigeria, which featured prominently at the forum in 2014, may get little mention this time around as global investors still have doubts about the measures put in place by the country’s officials – and their capacity – to tackle the country’s current economic challenges. The panel on Securing a Vaccine for Ebola should feature Nigeria’s success in preventing the Ebola Virus Disease from becoming an epidemic in the country, however. In this regard, the real danger is complacency. On January 14, the World Health Organization (WHO) declared the Ebola outbreak was over in West Africa. Hours later, a new case sprung up in Sierra Leone, with even more exposed. The flare-up highlights the urgency of securing a vaccine. So while the affected countries are now much more able to deal with future epidemics, there is clearly a need for permanent vigilance. And not just for Ebola. Nigerian authorities are currently battling a Lassa fever outbreak, albeit much more easily contained than Ebola and less fatal. Africa’s ability to successfully handle future epidemics – if diligent and swift actions are taken – has certainly been established. Still, capacity and infrastructure remain constraints. Africa and the world should not wait for another epidemic before addressing them. So a discussion on a vaccine for Ebola should also involve how the continent’s healthcare capacity and infrastructure can be enhanced on a permanent basis.

Why have much remained the same on the continent? Drought is having the similar food supply effects of years back because governments did not prioritize weaning their countries of rain-fed agriculture. Ebola took so many lives because of a slow global response, inadequate investments in health infrastructure and limited capacity. Corruption continues largely because of little political will, compromised or poorly functioning legal systems and a complacent citizenry. Power deficits have soared because of poor or no planning, lack of investments, wasteful subsidies and sabotage. Conflicts and terrorism remain because of continuing political interference by world powers and domestic elite power schemes. There is still room for optimism, however. Kenyan and Nigerian authorities are decidedly fighting corruption. Though, the usual political motivations continue to be perceived as driving these initiatives – concerns have been raised about rule of law and witch-hunting in the Nigerian case and in Kenya, opposition figures continue to insist Eurobond proceeds were misappropriated. There is a renewed focus on reducing the power supply deficit on the continent, much of it focused on renewables. Social media is increasing citizen engagement in the political process and forcing increased accountability. Strained government finances have spurred scrutiny of public expenditure to block leakages. Circumstances have also pushed African authorities to seek means to diversify their economies. So while the Africa Rising narrative would be difficult to defend at Davos this year, current forced structural reforms – if sustained – may eventually vindicate the optimistic advocacy of the continent’s many fans.

Also published on my company’s website on 20 Jan 2016. See link viz. http://macroafricaintelligence.com/2016/01/20/thematic-africas-challenges-remain-the-same/

Why Africa’s rise has not been inclusive; or has it? Part 2 #Africa, #Nigeria, #WEF, #MDGs, #PovertyAlleviation

A dimension to this debate that is not enjoying, as much attention is the possibility that perhaps there has been more economic growth inclusion in Sub-Saharan Africa (SSA) than the data suggests. Perhaps, it is not only the GDP data that hitherto weren’t reflective of the actual size of some SSA economies. Poverty statistics may very well be inaccurate on the upside as well. Of course, more could be done to accelerate poverty alleviation. But if the data doesn’t reflect more accurately the true state of affairs, some winning strategies may be unknowingly jettisoned as a result. Thus, as mundane as it may seem, getting the data right is a crucial step towards increasing economic and financial inclusion on the sub-continent. The IMF/World Bank and the Bill & Melinda Gates Foundation have been working with some of SSA’s statistical bodies to improve the accuracy and promptness of data coming out of the sub-continent.


A case in point is Nigeria (a discussion on Africa inevitably leads back to its largest and most intriguing economy). According to the Nigerian Bureau of Statistics, 72.3% of the country’s households buy mobile phone recharge cards every month. The only other non-food items that enjoyed such a priority in household expenditure were kerosene (72.7%) and soap & washing powder (90.9%). With more than 50% of Nigeria’s populationreported to be below the poverty line, it begs the question of where more than 70% of its households find the money to buy that much recharge cards or even find it in their budgets to purchase them in the first place. Much more revealing is how much they spend.


The mean expenditure on phone recharge cards by more than 70% (about the same percentage of its population supposedly living below the poverty line) of Nigeria’s households is 20,874 Nigerian Naira (140 US dollars). Isn’t the much-touted poverty line 1.25 US dollars a day and thus 37.5 US dollars a month? So if we summed up those non-food items that more than 70% of the country’s households spend money on (soap & washing powder, kerosene, and recharge cards), one gets a sense of the typical expenditure of the average Nigerian. The NBS reports monthly mean expenditure of Nigeria’s households on those items as follows: kerosene (6,660 naira (US$44)), soap & washing powder (5,510 naira (US$37)), and as earlier highlighted, US$140 on recharge cards. Thus, Nigerians spend more than 200 US dollars (US$221) on non-food items every month. That is approximately 6 times the poverty line. And one is not aware that they’ve gone hungry as a result.


A consumables, services (or in fact aspirational goods) multinational company thus looking to invest in the country (or sub-continent) before the above data was available would have come to the most erroneous decision that there was not enough consumer spending power to warrant a major capital allocation. This is why some of the international corporates already invested on the sub-continent do their own consumer research; earning bountiful profits as a result of course. And who in their right minds would make it widely known that there was such bountiful harvest to be had in what one widely read magazine once dubbed “the hopeless continent”. Well, the cat is out of the bag as they say. The world now knows of the opportunities that abound in Africa. The narratives (or questions) therefore these days about SSA opportunities are not so much if? But where? When? How long? Is it sustainable? How do I manage risks? So if the world is genuinely determined to reduce inequality and increase economic and financial inclusion on the continent, simple! Invest more. Increased investment in the various sectors of the continent’s economies is definitely one way to increase the inclusivity of its continuing high growth.


A point to note, however, is how the Africa’s economic evolution has been counterintuitive. Typically an economy should evolve from a primary extractive industry base to manufacturing & construction (secondary industry) and eventually services (tertiary industry). In Africa, the extractive industry remains dominant. In countries where some progress has been made, it has largely been in the services sector (with relatively fewer jobs created). The development of a manufacturing-led economy thus remains a continuing struggle for most countries on the continent. It is a significant factor in one’s view for why SSA’s high growth has not been as inclusive as it could (or should) be. So, another measure to addressing the inclusion question is for African governments and their partners to implement policies aimed at building a strong industrial base. The one policy area that has the most potential of achieving this would be a disproportionate focus on ramping up the continent’s power production capacity. No amount of investments in the continent’s power sector is too much. Of course, it needs to be pointed out that it is the labour-intensive type of manufacturing that is pertinent for Africa at this time.

Why Africa’s rise has not been inclusive; or has it? Part I #Africa, #Nigeria, #WEF, #MDGs, #PovertyAlleviation

The World Bank reports 7 of the 10 most unequal countries in the world are in Sub-Saharan Africa (SSA). Why, some ask, has Africa’s high GDP growth of at least 5% over the past decade not taken as many people as should be the case out of poverty? The question is increasingly being raised as it is now almost certain that poverty would not have been halved by 2015 as envisaged by the United Nations’ Millennium Development Goals (MDGs). Data from the World Bank shows poverty incidence on the sub-continent in 1990 of 56.5% only reduced by 8 percentage points to 48.5% in 2010. The troubling paradox comes against the backdrop of the increasing number of US dollar billionaires on the continent. According to Forbes magazine, the wealth of Africa’s richest man, Aliko Dangote, increased more than 8 times to USD25 billion in 2014 (36% of which was acquired over the past year) from USD3.3 billion in 2008 when he debuted on Forbes’ billionaires list. Yet during that period (2008-10), poverty incidence in Sub-Saharan Africa only reduced by 0.7ppts to 48.5 in 2010 from 49.2 in 2008. Ventures Africa magazine actually reckons Africa’s billionaires have at least USD143 billion in total wealth. That is at least 11% of SSA’s 2013 GDP of USD1.3 trillion.

Incidentally, most of these estimates are quite conservative since they don’t include undocumented (or hidden) and informal wealth acquired or stolen by former dictators and corrupt government functionaries. For instance, the Tana High Level Forum on African Security estimates that at least USD1.8 trillion was illegally acquired and removed from Africa between 1970 and 2009. That is twice (2 times) SSA’s 2009 GDP of USD897 million. Another report jointly authored by the African Development Bank (AfDB) and Global Financial Integrity puts cumulative illicit flows out of Africa between 1980 and 2009 at USD1.2 trillion to USD1.4 trillion. These estimates are not inflation and opportunity cost adjusted by the way. In other words, if the inflation rate during the period were to be considered, the figure could be much more staggering. Never mind the other immeasurable and exponential benefits that could have accrued from spending on education, infrastructure and social grants during this period. In fact, if we assumed that USD1 trillion to USD2 trillion was the wealth accumulated between 1980 and 2009 and further assumed that USD33 billion to USD67 billion was the amount of wealth created each year, the future value using SSA’s average inflation rate of 18% for the same period amounts to USD26 trillion to USD53 trillion. That is 20 to 40 times SSA’s 2013 GDP (and 35% to 70% of the World’s 2013 GDP)! If you think these figures border on exaggeration, let us look at another example. Africa’s largest economy, Nigeria (39% of SSA GDP), earned at least USD643 billion (1.3 times its rebased 2013 GDP) between 1980 and 2009 from crude oil. That is 32-64% of the assumed USD1 trillion to USD2 trillion accumulated wealth in the sub-continent during the period. And Nigeria is just one of 45 countries in Sub-Saharan Africa. Clearly, the inequality gap in Africa has not been for a dearth of resources.

The staggering inequality gap in SSA is certainly a source of worry for its richest. A week before the 2014 WEF on Africa that the continent’s richest man is also co-chairing, Aliko Dangote announced an endowment of USD1.2 billion (c. 5% of his wealth) to his “Dangote Foundation” (founded in 1994) to support education, health and youth empowerment in Nigeria. The foundation’s model is largely based on a concept that is increasingly gaining attention in development circles; cash transfer programmes – according to Forbes, the Dangote Foundation disburses 50-80 US dollars in cash to Nigeria’s poor rural women and youths to start small businesses. Initiatives such as this, if emulated by the many formal (and even more informal or shadow economy) billionaires in Africa would go a long way in accelerating poverty reduction in Africa.

In its upcoming planned two-part 2015 Report on Africa, the World Bank would assess the state of poverty and inequality in Africa and also provide suggestions on how to accelerate poverty reduction on the continent. At a briefing during the Centre for the Study of African Economies (CSAE) Conference of the University of Oxford in March 2014, its officials highlighted their preliminary thoughts on how they reckon Africa’s high growth could be more broadly shared. They include the maintenance of strong macroeconomic discipline, building better human and physical capital, promoting growth in places and sectors where the poor are and the creation of social protection and promotion systems that enable them to be shared. That part about social protection and promotion systems is increasingly gaining resonance amongst officials of the bank and other development experts. Another highly regarded economist at the conference wondered if it was not an attempt at a “latin-americanization” of Africa; a not-so-veiled reference to the likely motivation of the esteemed economists for wanting to experiment with conditional cash transfers (CCTs) in Sub-Saharan Africa because of the relative success of a similar programme in Latin America (Brazil in particular). Its research showed families systematically invested part of the CCTs they received in human and physical capital and even saved as well. It is thus likely the Bretton Woods institution is now convinced the same policy could be adapted for Africa. Simply put, the World Bank reckons CCTs are a real policy option; in addition to sustained economic growth and increased agricultural productivity of course. A significant caveat though is that the potential success of such a policy would be contingent on good governance. Incidentally, that caveat may actually be the key to accelerating poverty reduction in Africa. Most (if not all) of past poverty reduction interventions in Africa have failed principally because of poor governance and corruption.

Cash transfers wouldn’t necessarily constitute an innovation in Africa, however. South Africa devotes a significant portion of its yearly budget to social assistance programmes. Its success with these programmes remain mixed with some critics arguing it has created a culture of dependence and remains a significant point of difference between the country’s ruling and opposition parties. According to South Africa’s Economic Policy Research Institute, social grants helped reduce the poverty rate in the country – for its lowest poverty line set at 131.27 South African Rand (ZAR131.27) in 1993 and ZAR497.45 (approximately 50 US dollars) in 2013 – to 38 percent in 2013 from 45 percent in 1993. So, there is evidence that supports the case for CT/CCT interventions. However, in the same period, South Africa’s unemployment rate increased to 25 percent in 2013 from 20 percent in 1994. A balanced view therefore would likely be that it should be one of a bouquet of policy interventions aimed at accelerating poverty reduction on the continent. To one’s mind, however, the focus should be on good governance. It is the foundation that all policy interventions must build on if they are to succeed.