africatrendsmatter

Why Trump (unwittingly) might be a good thing for Africa – and other predictions for 2017-8…….

Africa continues to face major challenges. However, after an Africa Rising “false start” there are indications that a slower, but more deep-rooted upswing may be in the making. I have read all the Africa predictions I could find from IMF, World Bank, Brookings, AfricaPractice, Banks and others. I have found lots of good, sensible points about economic development, need for jobs, urbanisation, infrastructure etc.

However, once I started look beyond the usual sources and spoke to publishers, politicians, NGO leaders, entrepreneurs and analysed data on how mobile money flows I got the sense that a deeper trend around a more confident Africa is emerging. So, below my 8 suggestions on what to watch in 2017 and beyond:

  • Africa taking charge: Positive signs around Ghana’s elections, handling of the Gambia crisis.
  • A rising Africa-led narrative that Africans have to take charge of Africa’s issues. Examples around funding AU and AU peace-keeping work as well as the discussion to denounce or leave the ICC whilst still recognising the need to deal with impunity.
  • Trump might be a positive; whilst short-term US policy and aid will be messy and likely have negative impact, the bigger story might be that a global war on values along new fault-lines is emerging – this time deeply dividing the West with Africa not seeing itself as the target and victim. Africans and their leaders will have to define themselves within this mess.
  • Some areas will be hard hit by humanitarian crises. Possibly climate change related, but also clear that crises are much worse in poorly governed areas. Lots of academic and social media chatter about the need to address root causes (e.g. Nigeria, Somaliland) and over time change life-styles/structure of economy. Risks that deep crises will destabilise the weakest areas beyond 2017.
  • Politics still primarily played by old rules of the game, but it’s less easy and more costly now. Increased urbanisation and social media accelerates the process. Kenya’s elections will be interesting to follow (August 2017) and Zimbabwe’s in 2018.
    Some countries are well-placed to move fast, whilst others remain stuck in crisis and old-school leaderships – so expect an increasing gap in performance. To watch: virtuous policies and approaches spreading to neighbours and beyond.
  • Donors and outside influence will only be effective when based on sufficient mutual understanding. “Western finger-wagging” will be even less effective than ever before and overt domestic western agendas will come at a cost.
  • Debt and extractives failures. The hey-days with no debt and cheap credit are over. Ghana, Zambia and Mozambique have IMF discussions and Nigeria and Angola have massive economic challenges. All foreseeable during 2010-2014 but with collective, global denial. Whist messy and painful, some of the reforms are actually working and driving accountability and better value for money in public investment.

 

Issues not yet on the agenda + threats for the medium term:

  • Nigeria and South Africa will be major drags on the overall Africa growth rates. Both know facts, but given the size of their economies
  • Transition: Ethiopia, Rwanda and a number of other places will face transition challenges. Not only about democracy, but a wider discussion about inclusive politics and resource distribution. Each will likely happen through a degree of tension – with related risks of downward spirals.
  • Demography: population growth is pretty uniformly around 2.5 – 3%, meaning that 3-5% economic growth rates are only just above population growth. Hard to address head-on for cultural and political reasons. Urbanisation seem to be the strongest driver of decreasing fertility rates (similar to Europe during industrialisation).
  • Climate change: some of the models for climate change are highly alarming for Africa especially in light of population growth and food deficits.

Zambia budget analysis

For anyone interested in Zambia’s budget, the below link provides a useful overview, written by Greg Smith, Senior Economist, World Bank.

Broadly speaking, we agree with the points made. We would stress the uphill battle for the Zambia government to rebuild confidence after the policy flip-flopping, especially on mining and taxation in recent years. Also worth noting the low growth rates – just above population growth rates. This will make it harder for government – as the population will feel squeezed.

https://www.linkedin.com/pulse/zambias-2017-budget-restore-fiscal-fitness-gregory-smith?trk=hp-feed-article-title-publish

East Africa 2020-15. Rough times ahead or big leap forward? Help needed…..

east africaI am trying to think through the politics, development prospects and investment climate across East Africa between 2020-25. Beyond relatively narrow and superficial reports (IMF and EIU projections, National Development Plans) I see hardly any analysis. I would appreciate views and  comments on both opportunities and challenges.

The good:

  • Continued growth although slower than the last decade – still around 2-3% above population growth.
  • Lots of unused or under-ulitised potential, some of which would not take much to unlock (power, infrastructure, etc).
  •  Initial social change – incl. growing urban middle class. Technology opens opportunities and helps drive change and accountability.
  • Regional integration. While slow and marred by the same challenges faced by all regional projects, the EAC continues to make progress and open opportunities.

The bad:

  • Big Men, elections, politics weak institutions.   Ugandan (2021), Rwandan (2024), Kenyan 2024) and Tanzanian elections during that period all getting closer to a crunch point for a variety of reasons. Apart from Rwanda – who have their own political dynamics – it’s all about increased pressure on old elite power and patronage structures – but arguably with challenges being much harder (due to earlier populist and short-term moves), especially as states and institutions continue to struggle.
  • Inequality, social tensions and corruption. All inter-related and reinforced by population growth/land pressure/jobs/urbanisation challenges. Impacts on growth, stability and investment (and migration)
  • Investors getting increasing realistic: many will continue to see the potential, but the easy days will be over and some of the costs of the cheap borrowing and lack of earlier reforms (which should happen now) will have to be repaid.

 

The ugly?

  • Leaders in crisis or with sufficient levels of greed continue to use the nastiest tricks in the book to gain support – often around ethnicity and religion.  Worryingly, the social acceptability and the faultlines remain very near the surface. Even irregular or scattered eruptions (like Rwanda in 1994 or Kenya in 2008) will have growth and social implications for years or even decades after.
  • Security: At the domestic level this is closely related to the point above. In addition, East Africa is surrounded by a number of volatile neighbours. Some of those conflicts could severely undermine otherwise positive prospects.

 

These are just initial thoughts. Comments, ideas and views would be highly appreciated.

Africa trends – May 2016, the modern 3 “Cs” kicking in?

So what are the prospects for Sub-Saharan Africa four months into the year?

Overall, the mixed trends outlined in my December outlook still hold and in many ways they have further deepened. The underlying demographic trends and gradual professionalisation and innovation is still an important course for long-term optimism.

Yet, the latest growth forecast is down to just over 3%, or more worryingly near 0% growth per capita.  This should clearly worry politicians, business people and development partners.

In the short run, I see three courses of concern:

1) China. The slowdown is clear and only beginning. The impact on Africa is significant, both in terms of price of extractives and in terms of investment. A number of countries with “look East” strategies suffer from this.

2) Corruption and loss of reform momentum. It is now very clear that a number of countries (and development agencies) got over-optimistic about growth prospects. The fact that growth was generated by favourable extractive prices, Chinese investments and cheap credit with no change in productivity and no drive to improve public sector management, the business environment and other key reform areas. On the contrary, corruption and populist politics deepened. This has left a number of countries with severe budget deficits and increasing debt.

3) Critical and concerned electorates and middle class. Closely linked to the China (external) and corruption (internal) point above. People are increasingly angry. The disconnect and gap between “old-school” leaders and politics on the one hand and a gradually better educated and better informed and demanding electorates on the other is increasing. While I see no immediate major political crises on the horizon, low growth, poor services and job loses could easily cause problems in places like Ghana, Zambia, South Africa and beyond – most likely triggered by a corruption case with a particular public appeal.

In the long run, this could be seen as a normal development path, where the type of tension described above is necessary to improve the quality of leadership and public sector management which in turn will enable future growth. The initial signs are that leaders will look inward, become populist and pursue regressive rule-and-divide (using religion, ethnicity etc) rather than positive and progressive policies. Recent Mo Ibrahim scores across Africa confirms this. Some countries will eventually get it right, but the risk is that a low-growth/development path will prevail for much longer than necessary.

So what does this mean for businesses, security and development?

First, accept the easy times are over. Africa is still full of opportunities. But one needs to be realistic about the time frames and scale. Presence and demonstrating that one understands the context is crucial.

Second, get the facts right. The size of the market is still growing. But the lower middle classes are squeezed and possibly getting smaller in a number of countries. Fiscal deficits, debt levels and low growth will impact. At business level, get contracts right and expect less robust regulatory systems.

Lastly, most importantly as always, understand the politics and above all the drivers. In some respects, Africa has seen massive social change during the recent 20 years. But some of these changes are reversible. Technology, urbanisation and demographics will be positive drivers opposing old school elite politics facing increasing crisis. How this plays out will vary from country to country, but expect more frequent incidences of protests and civil unrest and beware of increasing use of negative politics – xenophobia, use of gangsters to protect business interests and increased crime in general. This should not scare anybody from working or investing in Africa, but rather just emphasise the need for good advice and partners.

Africa 2016 and beyond, 3 issues for investors, policy makers and development agencies….

OK, the easy years of the Africa Rising narrative are coming to an end – now what? Cheap money from capital markets, Chinese investments and high commodities prices are over and unlikely to return soon. Finally development aid is at best constant, but more likely to decline and be redirected towards other purposes and regions.

During the last decade an emerging genuine middle class has emerged in many places. Many are now under pressure. A number of governments failed to used the additional resources to prepare the ground for future growth and social development. Below I highlight 3 issues which in my view will all be critical for Africa’s social, economic and political future, starting in 2016:

1) The demographics – the biggest risk and opportunity!

Africa presently has about 1 billion people. More than 40% are below age 20.  In some places the demographic transition has not even started. Population estimates are that there will be 4 – 4.5 billion Africans by the turn of the century – or around 35-40% of world population (against 14% today). A huge market and business opportunity, but also a massive challenge for policy makers, social services, urban planners and clearly a serious risk to progress and stability if not handled properly. Basically, growth has to be 2-3% per year just to maintain per capita income, which makes 4-6% growth rates much less impressive and effective.

Most of the reports I come across – and maybe especially the ones from governments – focus too much on the positives. The private sector is a key part of the solution, but governments need to have a clear vision and not get distracted by short term goals or vested interests.

 

2) Confidence and innovation – the biggest inspiration and hope!

The recent 5 years have demonstrated a number of encouraging trends. Self-confidence – not just amongst the elite – is increasing. Seeing the level of innovation, ideas and debate happening amongst young people from all walks of life in places like Lagos and Nairobi is hugely encouraging, whether related to business, IT or music. Other places are following. Technology and urbanisation are clearly positive drivers.

People are getting better informed and there are encouraging examples of people taking collective action, in some or many cases despite strong resistance from whoever is in power. There is more transparency, which is slowly leading to stronger pressures for accountability, both at the micro and macro levels – or at least it’s getting harder for leaders to get away with mischief unnoticed. Going forward, the challenge is to widen-, accelerate and channel all these ideas – to make societies more productive and resilient. With global mega-shifts, a number of African elections, El Nino and the usual amount of “unknown unknowns” 2016 might be the year when leaders, businesses and development agencies will have to recognise this trend in a more structured manner.

 

3) Leadership and government capability – the biggest worry?

Despite all the hard work from a large number of political leaders, technocrats and others, the nature of politics has not changed much in many places. There are still too many places where the state is based on patronage and rent-seeking, which crowds out the effectiveness of growth and development objectives. The positive rhetoric is gaining strength, but when it’s crunch time too often leaders are constrained by a weak system (or, in some cases – they themselves are part of the problem), which undermines good decisions.

Some countries have clear lessons from the last 5-10 years on the need for a step-change in the approach to the public sector. A few countries have made impressive progress already – others may be forced by crisis to rethink their approach. Urban middle class and youth will increasingly be a driver although some countries are still 5-10 years away from that. Expect increased tension – some leaders will react with even more populist and divisive approaches. The good news is that a few relatively simple improvements would lead to massive unlocking of growth potential. Businesses will have to manoeuvre carefully.

There are obviously lots of other issues and trends to consider and equally I have used very generalised and simplified points even if there are very significant country differences. Please challenge me, disagree or educate me in your comments – the above is entirely my personal views and attempt to get people thinking about these issues. I hope you enjoyed the read.