Africa’s newfound love with creditors: Bond bubble in the making?

I know it is increasingly becoming not kosher to put a damper on the Africa Rising narrative (these guys missed the memo, H/T Vanessa) but here is a much needed caution from Joe Stiglitz and Hamid Rashid, over at Project Syndicate, on SSA’s emerging appetite for private market debt (Africa needs US $90b for infrastructure; it can only raise $60 through taxes, FDI and concessional loans):

To the extent that this new lending is based on Africa’s strengthening economic fundamentals, the recent spate of sovereign-bond issues is a welcome sign. But here, as elsewhere, the record of private-sector credit assessments should leave one wary. So, are shortsighted financial markets, working with shortsighted governments, laying the groundwork for the world’s next debt crisis?

…….Evidence of either irrational exuberance or market expectations of a bailout is already mounting. How else can one explain Zambia’s ability to lock in a rate that was lower than the yield on a Spanish bond issue, even though Spain’s [which is not Uganda...] credit rating is four grades higher? Indeed, except for Namibia, all of these Sub-Saharan sovereign-bond issuers have “speculative” credit ratings, putting their issues in the “junk bond” category and signaling significant default risk.

The risks are real, especially when you consider the exposure to global commodity prices among the ten African countries that have floated bonds so far – Ghana, Gabon, the Democratic Republic of the Congo, Côte d’Ivoire, Senegal, Angola, Nigeria, Namibia, Zambia, and Tanzania.

In order to justify the exposure to the relatively higher risk and lending rates on the bond market (average debt period 11.2 years at 6.2% compared to 28.7 years at 1.6% for concessional loans) African governments must ensure prudent investment in sectors that will yield the biggest bang for the buck. And that also means having elaborate plans for specific projects with adequate consideration of the risks involved.

Here in Zambia (which is heavily dependent on Copper prices), the Finance Minister recently had to come out to defend how the country is using the $750 million it raised last year on the bond market (2013-14 budget here). Apparently there was no comprehensive plan for the cash so some of the money is still in the bank awaiting allocation to projects (It better be earning net positive real interest).

“They are fighting each other. By the time they have projects to finance, they will have earned quite a lot of interest from the Eurobond money they deposited. So, all the money is being used properly,” he [Finance Minister] said.

Following the initial success the country’s public sector plans to absorb another $4.5b in debt that will raise debt/GDP ratio from current ~25% to 30%. One hopes that there will be better (prior) planning this time round.

Indeed, last month FT had a story on growing fears over an Emerging (and Frontier) Markets bond bubble which had the following opening paragraph:

As far as financial follies go, tulip mania takes some beating. But future economic historians may look back at the time when investors financed a convention centre in Rwanda as the moment that the rush into emerging market bonds became frothy.

The piece also highlights the fact that the new rush to lend to African governments is not entirely driven by fundamentals – It is also a result of excess liquidity occasioned by ongoing quantitative easing in the wake of the Great Recession.

I remain optimistic about the incentive system that private borrowing will create for African governments (profit motive of creditors demands for sound macro management) and the potential for this to result in a nice virtuous cycle (if there is one thing I learned in Prof. Shiller’s class, it is the power of positive feedback in the markets).

But I also hope that when the big three “global” central banks start mopping up the cash they have been throwing around we won’t have a repeat of the 1980s, or worse, a cross between the 1980s (largely sovereign defaults) and the 1990s (largely private sector defaults) if the African private sector manages to get in on the action.

African governments, please proceed with caution.

Georgetown MSFS Launches New Africa Scholarship

The application deadline is January 15, 2014. Spread the word.

Starting in fall 2014, the Master of Science in Foreign Service (MSFS) at Georgetown University is offering a full- tuition scholarship for a talented graduate student from sub-Saharan Africa.

Image

MSFS is a two-year, full-time graduate degree program in international affairs. Students will take courses in international relations, international trade, international finance, statistics and analytical tools and history. In addition, students choose an area of concentration such as International Relations and Security, International Development or International Business.

More on State Building and the International System

This is a guest post in response to a previous blog post by friend of the blog Matthew Kustenbauder.

Your post highlights the contradictions between today’s human rights regime (which is based on universal concepts of humanity and has its origins in European anti-slavery campaigns and traditions of humanitarianism, and before that debates in Christian theology) and the post-imperial international order (based on the nation state as the fundamental political unit).

Since the rise of nationalism after WWII, new states that were historically part of empires (and thereby incorporated under their systems of law, governance, and trade) have had to make their own way. For most of these states, and especially for the people living within them, the new era of national self-determination has been no more kind than was the Age of Empire. The withdrawal of imperial powers left a vacuum that today’s international system struggles to address with any effect. There are many reasons for this, not the least of which is that it is a fragmented and cumbersome system that gives the impression all states are “equal” — clearly they are not. It also tends to be a forum in which smaller and poorer states invoke language of victimhood in an effort, ironically, to get larger or more wealthy states to step in and do the work that states are meant to do for themselves — namely, govern those residing within their boundaries.

What do I mean by this last point? An illustration by way of anecdote may help clarify. I was recently frustrated watching a BBC World Report special (an outlet for the Bleeding Hearts Industrial Complex that you mentioned in your post) about multinationals and poor working conditions in the developing world. Cotton and chocolate were featured. The reporter investigated big cotton operations in India and cocoa plantations in Cote D’Ivoire. What registered as surprise to the BBC reporter was no surprise to me — He found lots of young women and children working there. But instead of asking why the local government didn’t regulate the industry or why they didn’t enforce the regulations already on the books, he ran off to Switzerland and the UK and America to ask why Nestle and Tommy Hilfiger, etc. don’t monitor their supply chains. I was baffled. This is a classic example of how an international system based on the sovereignty of individual nation states is at odds with universal notions of human rights. In many ways, it is the modern-day replacement for the old global-local tensions that existed between the imperial metropole and its colonies. We might ask, however, whether the current framework in which human rights activism operates is really any better suited to address the ongoing problems that plague developing nations. To my mind’s eye, the focus is on the wrong place … or is at least too focused on the role of businesses and advanced economies and not focused enough on working with multinationals in order to help citizens in poor countries put pressure on their governments to be accountable, competent, and truly sovereign.

The emphasis on human rights by Western governments and development work by NGOs in African countries have, more often than not, undermined the sovereignty of national governments since decolonization. More recently, however, China has emerged as the largest trading partner with many African countries. This is a game changer, not only because the Dragon does not hold human rights sacrosanct, but also because, unlike its Western counterparts, China considers economic growth and trade essential to establishing national sovereignty and the nation-state (not the international community) as the principal guarantor of the well-being of its citizens. The degree to which China can be ‘socialised’ in the ways of the international system, which was after all created by the Great Powers to replace the disintegrating world that western empires had made, remains to be seen. In any event, the long-standing tensions between universal principals of human rights, on the one hand, and the limits placed on intervention into the affairs of one state by another in the name of national sovereignty, on the other, will endure.

=======
Matthew Kustenbauder is a PhD candidate in history at Harvard University.

Rants and Raves / Thoughts on the African Union

The African Union (AU) has had a rough few months. The diplomatic failures in Zimbabwe, Cote d’Ivoire, and Madagascar exposed the organization’s incompetence. The misguided anti-ICC crusade continues to cement the image of the organization as nothing more than a club of out-of-date and tone deaf autocrats. To many observers, calls for “African  Solutions to African Problems” amid all this failure has been seen as a cover of impunity and mediocre leadership on the African continent.

It says a lot that the current chairman of AU is President Theodore Obiang’ of Equatorial Guinea; a man who leads an oil-rich country of under 0.7 million people, with a per capita income of more than 30,000; but with more than 70% of its population living on less than $2 a day.

The epitome of the organization’s woes was the total snub it got from NATO before the military campaign against Libya’s Gaddafi, one of the AU’s main patrons. The AU was created by the Sirte Declaration, in Libya. Mr. Gaddafi’s influence ranged from his “African Kings” caucus (in which he was the King of Kings) to investments from Libya’s Sovereign wealth fund. I bet Gaddafi had a hand in the organization’s green flag.

So what ails the African Union?

The AU’s problems are legion. In my view, the following are some of the key ones.

  1. Lack of a regional hegemon(s): The AU faces massive collective action problems. With no regional hegemon(s) to act as the rudder of the organization, most of the organization’s resolutions are not worth the paper they get written on. The rotating chairmanship is a distraction from the real leadership needed in the organization. For instance, I had to google it to find out who’s currently in charge of the presidency of the EU (Poland). Everybody knows that France and Germany run the EU. Their word has gravitas in the Union. In the AU on the other hand, there is no leader. Could it be Navel-gaving South Africa or serially under-performing Nigeria?
  2. Too much political control: Most successful international organizations, despite having political principals, tend to have technical agents that are to some extent shielded from the principals. The AU is political through and through. The key decision-making body is the assembly of heads of state. The council of ministers does nothing. And the commission is all bark and no bite. Cronies of dictators staff most of the key positions in the organization.
  3. Disconnect from the masses: Most Africans have no idea what exactly the AU does. What is the point of the organization? Is it to preserve Africa’s borders? Is it to defend the likes of Gaddafi when the ICC’s Mr. Ocampo comes calling? Giving the people a voice in the Union might force the organization to do the people’s bidding, instead of being a protector of impunity in the name of African sovereignty.

What would reforming the AU entail?

  1. Radical restructuring: Like all inter-state organizations, the AU’s leadership should reflect regional power differences. The current assembly – in which Chad has the same power as Nigeria – makes no sense. There should be a smaller assembly of sub-regional representatives (West – Nigeria; East-Ethiopia; North – Egypt; and South-South Africa) with veto power and the mandate to implement the organization’s resolutions.
  2. Competent staffing: The practice of presidents appointing their sisters-in-law as AU representatives should go. An injection of competent expertise into the organization would go a long way in making it appear to be a more politically independent, competent and respectable organization.
  3. Direct elections to the AU parliament or no parliament at all: Instead of having the members’ parliaments elect representatives to the AU parliament, there should be direct elections. If that cannot happen then the parliament should be scrapped all together. A toothless and unrepresentative parliament is a waste of resources.
  4. Constructive and focused engagement with the rest of the world: Who is the AU chief foreign policy person? Are there permanent representatives in Beijing, Brussels, Brasilia, New Delhi and Washington? Why aren’t they trying to initiate a collective bargaining approach when dealing with these global powers (even if it is at the sub-regional level)? And what with the siege mentality? Not every condemnation of African leaders’ incompetence and mediocrity is a neo-colonial conspiracy, you know. For instance, instead of whining against the ICC’s Africa bias, the AU should clean up its own house. It doesn’t matter that George Bush is not being tried for crimes against Iraqis. The last time I checked none of the leaders of Switzerland was being tried for crimes committed in the German cantons.
  5. A more consistent commitment to progressive ideals: The AU is the only organization in the world that includes in its charter the provision to intervene in its member countries under the principle of responsibility to protect. If the AU were slightly more serious, the disasters in Zimbabwe, Cote Ivoire and Madagascar could have been nipped in the bud. As things stand it is only tiny Botswana that keeps shouting about the organization’s commitment to proper governance and responsibility to protect.

I am not a fan of the idea of the United States of Africa. That said, I believe that a regional organization like the AU can be a force for good. But in order for it to fulfill its purpose, it has to change. The change must reflect the regional power balance; it must increase the competence quotient in the AU and it must increase the voice of the average African within the organization.

Briefing from Malabo

The club of African autocrats African Union has its biannual summit in Malabo, Equatorial Guinea this week (This guy is the current AU Chairman, no joke).

The struggling AU has a lot on its plate at the moment (subject of an upcoming blog post). It is in the middle of trying to put out new fires in Sudan and Libya, while ignoring/recovering from the humiliation of its failures in Somalia, Cote d’Ivoire, and Zimbabwe – not to mention the region’s other problems.

All this while insisting on “African Solutions to African Problems,” despite the organization’s infamous reputation for incompetence.

Top on the agenda at the summit has been the ongoing hostilities (Obama might disagree) in Libya. According to the Oman Daily Observer, the AU has come up with a plan that

“envisages a ceasefire, humanitarian aid, a transition period, reforms towards democracy and elections, but the position on the future of Gaddafi has not been made clear.”

In other words the heads of state in Malabo, led by their Chairman Obiang, are hoping to do a Zimbabwe: Have Gaddafi in charge of the same reform process that is supposed to phase out his 42-year rule. I need not elaborate how this story ends.

No ICC hearings in Kenya

The ICC Pre-Trial Chamber Judge Ekaterina Trendafilova on Wednesday decided that the trial of suspects of the 2007-08 election violence in Kenya will not be held in the country.

Great move.

I am of the view that holding the hearings in Kenya would have created an unnecessary distraction from the important task of implementing Kenya’s new constitution. Already, the bigwigs accused of masterminding the violence that killed 1300 and displaced over 300,000 Kenyans have ethnicized their predicament. Holding the hearings in Kenya would have handed them an opportunity for a circus of ethnicity-charged rallies and demonstrations in Nairobi.

The ICC continues to be a source of debate in Kenya and across Africa. Many have faulted the court’s apparent bias against African leaders. Some have even called it a form of neocolonialism. While admitting that the court could use a little bit more tact [principally by acknowledging that it cannot be apolitical BECAUSE it is an international court SANS a world government] I still think that it is the best hope of ending impunity on the African continent – at least until African leaders internalize the fact that it is not cool to kill your own people.

Among the cases that should have been handled with a sensitivity to political realities include Sudan and Libya [and may be the LRA in Uganda]. Kenya’s Ocampo Six, the DRC’s Jean-Pierre Bemba and Cote d’Ivoire’s Laurent Gbagbo, on the other hand, should not raise questions of national sovereignty. Murderous dictators and their henchmen do not have internal affairs. In any case sovereignty for many an African country means nothing more than sovereignty for the president and his cronies.

Related posts here and here.

mbeki’s take on the ivorian crisis

Ouattara’s victory over Gbagbo in Cote D’Ivoire is quickly generating winner’s remorse. The coalition of disparate rebel forces that united to oust Gbagbo is already breaking apart. Just this past week Ibrahim Coulibaly, a rebel commander, was killed after he refused to obey Ouattara’s order to disarm his units. Mr. Ouattara himself is facing the sisyphean challenge of cleaning up the mess from the decade long civil war and the recent onslaught on Abidjan amid economic decline and divisions within his own coalition. Supporters of Mr. Gbagbo are also not yet into the idea of having the northerner running the show. Over 40% of Ivorians, most of them southerners, voted for Gbagbo.

In the wider region, many see the heavy French involvement in the whole situation as suspect. Thabo Mbeki, the former president of South Africa, had this to say in a piece posted on the FP website:

France used its privileged place in the Security Council to position itself to play an important role in determining the future of Côte d’Ivoire, its former colony in which, inter alia, it has significant economic interests. It joined the United Nations to ensure that Ouattara emerged as the victor in the Ivorian conflict.

This addressed the national interests of France, consistent with its Françafrique policies, which aim to perpetuate a particular relationship with its former African colonies. This is in keeping with remarks made by former French President François Mitterand when he said, “Without Africa, France will have no history in the 21st century,” which former French foreign minister Jacques Godfrain confirmed when he said: “A little country [France], with a small amount of strength, we can move a planet because [of our]…relations with 15 or 20 African countries…”

Mbeki has a point.

That said, I don’t totally buy into the idea that the West, or any other outsider for that matter, should keep out of Africa’s affairs. Isolationism (caused by the great sand wall that is the Sahara) has not served Africa well in the past. Africa needs more trade and involvement  in international politics. Both acts necessarily require international involvement in Africa.

So to the likes of Mbeki I say, the trick is not to require the West or East or even the Emerging South to benevolently stay out of Africa’s business. Rather, African states should develop their own capacities to deal with the reality of world politics: Strong states will always prey on weak ones. If you do not want to be preyed upon, you have to get your act together. Stephen Waltz in his seminal work titled Theory of International Relations writes:

Weakness invites control; strength tempts one to exercise it, even if only for the “good” of other people.

The problem of exploitative international involvement in Africa is sustained primarily by the persistence of inept kleptocratic leadership in the region.

To go ahead and grant these dictators immunity from international pressure would be a most undesirable outcome. People like Idriss Deby, Paul Biya, Theodore Obiang, among others, should not be given space. Dictators do not have internal affairs.

It is a pipe dream to continue nurturing and protecting mediocre leadership all over Africa while expecting the strong nations of the world to benevolently keep off. It is the mismanagement of Africa by its leaders that creates fertile grounds for self-interested international preying involvement by the likes of France – with disastrous consequences for the local populations.


support the victims of cote d’ivoire’s war

Texas in Africa has an idea about how you can help the people caught in the conflict in Ivory Coast.

Meanwhile, the BBC reports that the presidential palace in Abidjan may have fallen to forces loyal to Alassane Ouattara, the recognized president of Ivory Coast. It is not clear whether former president Laurent Gbagbo was in the complex. More on this soon.

the au, without a regional hegemon, is toothless

On March 10th, 2011 the African Union (AU) declared Alassane Ouattara as the legitimately elected president of Ivory Coast. Outgoing president Laurent Gbagbo (who insists he won the poll) responded by ordering his soldiers to kill supporters of Mr. Ouattara.

Now the ball is back in the AU’s court. So far the regional body appears to be at sixes and sevens, unsure of how to react. Lacking a regional hegemonic benefactor, the AU has over the years been mostly bark and no bite. Its leadership reflects the confusion and ineptitude that characterize the Continental body. One of its recent leaders is Muamar Gaddafi. Presently it is led by Teodoro Obiang Nguema Mbasogo, dictator of Equatorial Guinea and this idiot’s guy’s dad.

Mr. Gbagbo has refused to step down or be part of a unity government led by Mr. Ouattara, as demanded by the AU. Increasingly isolated, he has nationalized the cocoa industry in a desperate attempt to get some cash to pay his loyalists. Cote d’Ivoire produces 40% of the world’s cocoa. He is also reported to be receiving help from Robert Mugabe of Zimbabwe and Angola’s Jose Edwardo do Santos.

In an ideal world South Africa or Nigeria or even Ethiopia would have provided leadership and force whenever needed to ensure that AU resolutions are enforced. But Pretoria has a president in Zuma who shows no interest in foreign policy; his handling of the Zimbabwe crisis speaks volumes. Abuja is a mess, period and Ethiopia has first to eradicate famine before it can venture anywhere beyond Somalia.

Without an enforcement mechanism and a regional hegemonic benefactor, the AU’s resolutions will continue to be nothing but hot air.

the African Union and its problems

The just concluded AU summit in Addis Ababa, Ethiopia had two key problems to address: the political crisis in Ivory Coast and the legal battles involving six Kenyans who face charges at the ICC. So far the continental body appears to have failed on its attempts to address both problems.

In the Ivory Coast, Mr. Gbagbo’s camp has already declared that the five person panel formed by the AU is dead on arrival unless Burkinabe president, Compraore is dropped. The Daily Nation reports:

The president of Burkina Faso, named on a high-level African Union panel tasked with settling Cote d’Ivoire’s leadership crisis, is “not welcome” in this country, a top ally of strongman Laurent Gbagbo said here yesterday.

And in Kenya, the political football involving the setting up of a credibly clean local judicial system to try perpetrators of the 2007-8 post election violence diminished the prospects of a deferral from the UN Security Council. Kenya must guarantee that it will try the suspects for the ICC to consider a deferral. It does not help that the appointment of high members of its judiciary, including the chief justice, the attorney general and the director of public prosecutions has already been soiled by political grandstanding.