This is a story about Kenya building the first new railroad since the British built the old one more than a century ago. The new line goes through a National Park. A watchman was attacked by a cheetah. No one was mauled by lions. The attempts to link the current project to the Man Eaters of Tsavo trope is noted, but that happened a century ago when the lion population in the Protectorate was still quite big, and rhinos charged mail cars.
Only 9 out of 54 African countries are represented on the 2014 Forbes billionaires list. There are certainly more than 29 dollar billionaires on the Continent (most of the rest being in politics). Let’s consider this list as representative of countries in which (for whatever reason) it is politically safe to be publicly super wealthy – which in and of itself says a lot about how far Nigeria has come.
Some will look at the list and scream inequality. I look at the list and see the proliferation of centres of economic and political power. And a potential source of much-needed intra-elite accountability in African politics. For more on this read Leonardo Arriola’s excellent book on the role of private capital in African politics.
See earlier posts on this subject here and here. Below is a quote from FP on Uganda’s growing petroleum sector (see also the Global Witness report on Uganda’s secret oil contracts here):
The bulk of Ugandan government borrowing against future oil revenues has focused on grand infrastructure schemes built and funded by the Chinese. In 2014 alone, the government signed deals with China to build two hydropower dams worth $2.2 billion, a standard gauge railway that could cost up to $8 billion, and a $600 million fertilizer plant. Additional projects include a $2 billion oil field being developed by the state-owned China National Offshore Oil Corporation and a $350 million roadbetween Uganda’s capital, Kampala, and Entebbe International Airport. The possibility has even been raised that a Chinese bank may bail out Ugandan parliamentarians in danger of going to jail for failure to honor their debts.
And how efficiently is Uganda spending the [expensive] borrowed money?
Costs for the Ugandan section of the East African Standard Gauge Railway are especially out of control. The project had an initial price tag of $4.5 billion for the Ugandan side of the railway, compared to $3.8 billion for the Kenyan side. Estimated costs in Uganda subsequently shot up, first to $8 billion and then to a staggering $11 billion
So what will happen when China decides to deal with its public debt situation and the effects propagate to its many public companies involved in mega-projects in Africa?
To reiterate, let’s not declare mission accomplished in the war against the resource in Africa just yet.
Here are the top posts in 2014
1. Corruption under apartheid South Africa: This post was top partly because of the 2014 South African elections. More on the legacies of apartheid era corruption and rent-seeking in South Africa here.
2. Kenya Security Laws (Amendment) Bill 2014: This bill (now an Act of Parliament) is further evidence of Uhuru Kenyatta’s autocratic tendencies. I personally don’t think that he is an incarnation of Moi or other dictators of years gone. Rather, Mr. Kenyatta is a poor administrator who likes taking shortcuts to get quick results. As I argued in a related post, the Security Laws (Amendment) Act 2014 could potentially severely limit civil liberties in Kenya.
3. Did European Colonialism Benefit Africans? The popularity of this post is perhaps a reminder that more research is needed on the long-run effects of colonialism not just in Africa but in other formerly colonized places as well. So far all the literature tells us is that colonialism was bad, but that the Western institutions that Europeans spread around the globe are good. More recently we’ve seen evidence that pre-colonial institutions in the colonies were pretty resilient in the face of colonial intrusion; and have had lasting effects (also remember that the duration and intensity of colonialism varied widely across the globe). One avenue of research that I have been exploring is how pre-colonial institutions interacted with colonial administrations, and how this shaped the institutions that emerged out of the independence wave of the early 1960s. More on this in the new year.
4. Why Raila Odinga Lost: A sizable proportion of Kenyans still believe that Odinga was robbed in the March 2013 election in Kenya. I disagree. In my own projections on this blog – merging disaggregated opinion polls with historical district turnout rates (perks of having a case with tight ethnic voting) – I found Mr. Kenyatta to be ahead of Mr. Odinga by about 740,000 votes, or 7.2 percentage points (which was close to the final official figure of 6.7% difference between the two).
I don’t think that Kenyatta won in the first round, but do believe that we would have trounced Odinga in a runoff anyway. Which is why I have never come to terms with the unanimous Supreme Court decision granting Kenyatta victory on the basis of less than 9000 votes out of 12.3 million cast.
5. Understanding Uganda’s Military Adventurism Under Museveni:
General President Museveni has managed to create an image of himself as the anti-terror hatchet man in the wider horn of Africa region. Ugandan troops are the backbone of the AU mission in Somalia (AMISOM). Since his triumphant entry into Kampala in 1986 Museveni has also been involved in conflicts in Rwanda, the DRC, Sudan, C.A.R, and more recently South Sudan. Because of the degree of militarization of the Ugandan state and recent public displays of intra-elite friction, I think Uganda will continue to inch up in the coup sweepstakes ahead of the 2016 election.
On January 15th 2014 President Yoweri Museveni finally admitted that Uganda People’s Defence Force troops are engaging in combat operations within South Sudan. Right after the political fallout in Juba and escalation of hostilities between forces loyal to President Salva Kiir and those behind his former deputy Riek Machar, Mr. Museveni threatened Machar with military action if he did not come to the table to negotiate with Kiir. Museveni’s military involvement in the conflict has caused concern in Nairobi and other capitals in the region. For one, Uganda’s military intervention in the conflict may yet jeopardize the ceasefire agreement that was signed on January 23, 2014 in Addis Ababa. The regional body IGAD (Intergovernmental Authority on Development) is supposed to be a neutral arbiter and monitor in the conflict. Museveni’s clear leanings towards the government in Juba may bring to question IGAD’s neutrality in the mediation effort.
For historical reasons (see below) Khartoum fears Kampala’s military involvement in South Sudan. But this time the situation is slightly different, and a little more complex. Bashir has already shown his hand in support of Juba against Machar, possibly for two reasons: (i) Khartoum needs Juba’s help in weakening the rebellion by the rump SPLA (SPLA-North) that is still active in Blue Nile and South Kordofan, regions that border South Sudan; and (ii) Bashir needs to keep the oil flowing in order to ward off internal turmoil within Sudan due to rapidly deteriorating economic conditions (see here). Kiir’s willingness to throw SPLA-N under the bus comes as no surprise since it is an offshoot of the “Garang Boys” (mostly PhDs) who occupied a special place, unlike Kiir and others, in John Garang’s SPLA. SPLM-N’s leader Malik Aggar, shared Garang’s vision of one united reformed Sudan, as opposed to secession by the South. At the same time, however, Khartoum does not want a super strong South Sudan free of rebels. Total cessation of conflict in South Sudan would rob Khartoum of proxies to keep Juba in check. Uganda’s involvement could tip the balance in Juba’s favor vis-à-vis potential Bashir allies.
Meanwhile in Nairobi and Addis Ababa concern is growing over Uganda’s claim that the IGAD should foot the bill of UPDF’s adventures in South Sudan. Both Ethiopia and Kenya prefer settling the conflict at the negotiating table, partly because both have their security forces stretched by domestic armed groups and bandits and the war in Somalia. Kenya has said categorically that it will not send troops to South Sudan, even under IGAD. The wariness in Nairobi and Addis to send troops or cash for a military cause in South Sudan contrasts sharply with Kampala’s choice of military action from the moment the current flare up started in Juba. This despite the fact that Uganda also has troops serving in Somalia.
Which raises the question: What explains Uganda’s international military adventurism under Museveni? The answer lies in the confluence of history, international geopolitics, and Uganda’s internal politics.
Uganda is one of the more militarized states in Africa, with the military having direct representation in parliament (10 seats). It is also interventionist, with a history of combat engagement and support for rebel groups in six neighboring states – Burundi, the Central African Republic (CAR), the Democratic Republic of Congo (DRC), Rwanda, Somalia, and South Sudan. More recently, the nation has been a key advocate for greater integration within the East African Community (EAC). Indeed, Ugandan President Yoweri Museveni fancies himself as a possible head of an EAC political federation should it ever materialize. Uganda is also a key player in the African Capacity for Immediate Response to Crises (ACIRC), a proposed standby force with capacity to rapidly deploy troops to trouble spots in Africa (other key supporters include South Africa, Chad, and Tanzania).President Yoweri Museveni’s military adventurism and internationalist outlook have deep roots. As a young student in Tanzania, Museveni was involved in exile organizations opposed to Iddi Amin. Indeed, Museveni’s National Resistance Army (NRA), started off as the Popular Resistance Army (PRA) in Tanzania (As testament to its Tanzanian roots, NRA borrowed the idea of political commissars from the Tanzanian military to educate civilians in “liberated” Luweero Triangle). In Tanzania and even after returning to Uganda Museveni made regional connections that he maintained even after he ascended to power in 1986 – including Rwanda’s Paul Kagame, Sudan’s John Garang’, and leaders of Mozambique’s FRELIMO. Before rebelling against Kigali, Kagame was Museveni’s Chief of Military Intelligence. Museveni supported Garang’s Sudan People’s Liberation Army (SPLA).
Once in power, Museveni styled himself as the guarantor of peace and stability in Uganda. Many (both at home and abroad) evaluated his performance relative to the disastrous years under Amin and the ensuing civil war. The resulting peace dividend (albeit restricted to the south of the country) was marked by relative macro-economic stability, with growth averaging about 6% for much of the 1990s. This made Museveni a darling of Western donors and international financial institutions. However, Museveni’s record with regard to democracy and human rights remained dubious. This put him in awkward position vis-à-vis the West, especially since the 1990s was the zenith of Western promotion of liberal democracy.
To this Museveni reacted cleverly, and worked hard to position Uganda as a strategic player in the wider region’s geopolitics. In order to maintain his international stature and secure his position domestically, Museveni labored to bolster Uganda’s relevance to the West.
Beginning in the early 1990s, Uganda got militarily involved in a number of neighboring states. Support for Garang’s SPLA drew the ire of Khartoum, which in turn supported the Lord’s Resistance Army (LRA) in northern Uganda. Subsequently, the Ugandan military conducted raids against LRA bases in Sudan while also offering combat assistance to the SPLA. For instance, the 1997 battle at Yei featured Ugandan soldiers alongside the SPLA against the Sudan Armed Forces (SAF). It is around this time that the seed was planted for future military involvement abroad at the turn of the century (this time in Somalia under the Western-funded AU mission, AMISOM, to help stabilize the country). After US President Bill Clinton designated Sudan as a state sponsor of terror, Uganda positioned itself as an ally in the frontline of “Global War on Terror.” Kampala served as an intermediary for US aid to SPLA, thereby further strengthening US-Uganda military ties. It is telling that in 2003 Uganda was among only a handful of African states that supported the US-led Iraq War. About 20,000 Ugandans worked in US military bases in Iraq (this was also an excellent job creation tool; and a way of earning Forex).
So far Uganda’s most complex military adventure was in the Democratic Republic of Congo (DRC). A mix of strategic geopolitical positioning, the need to secure markets for Ugandan goods, private greed and domestic politics drove Uganda’s invasion of the DRC. The first Congo War (1996-97) was swift, aimed at helping Laurent Kabila oust Mobutu Seseseko (Rwanda and Angola also helped). Soon after Uganda and Rwanda fell out with Kabila, occasioning the Second Congo war (1998-2003), which involved four other African states. It is then that the façade of intervention for regional stability completely broke down. Ugandan and Rwandan commanders exploited existing and new cross-border smuggling and semi-legitimate trade networks to orchestrate massive pillaging of natural resources in eastern DRC (Competition between the two militaries later intensified, resulting in the “Kisangani Wars.”)
For instance, in the year 2000 despite only producing 0.00441 tonnes of gold, Uganda exported 11 tonnes. A UN report indicates that well-connected generals (including Museveni’s half-brother) created entities headquartered in Kampala to facilitate the illicit trade. It’s important to note that Museveni’s tolerance of the semi-autonomous activities by his generals was strategic (it generated revenue through Kampala-based entities and kept the generals happy) and did not lead to fracturing within the military. Indeed, many of those involved were later promoted.Incidentally, the present involvement in South Sudan also reflects the multifaceted logic of Ugandan international military adventurism. Historical alliances with the SPLA against the LRA and SAF make Kampala and Juba natural bedfellows. But the intervention is also about securing markets for Ugandan goods. According to figures from the Bank of Uganda, in 2012 the country’s exports to South Sudan totaled an estimated USD 1.3 billion. About 150,000 Ugandan traders operate across the border, not to mention countless more primary producers in agriculture who benefit from cross-border trade with their northern neighbor.
The above account explains Museveni’s efforts in the recent past to build an image as the regional powerbroker: heading peace talks between the DRC, Rwanda and eastern DRC rebels; intervening in Somalia to prop up the government in Mogadishu; and in the latest episode siding militarily with President Salva Kiir in South Sudan’s domestic political cum military conflict. Domestically, Museveni’s grip on power is as strong as ever. Recent reshuffles in the military removed powerful Historicals (the original “bush war heroes”) thereby leaving Museveni (and his son) firmly in control of Uganda’s armed forces. There is no end in sight for Uganda’s international military adventurism.
In many ways Uganda’s international adventurism has been a case of agency in tight corners. The country is a landlocked; has neighbors with sparsely governed borderlands that provide rear-bases for Ugandan armed groups; and Kampala needs Western aid to maintain the regime, a situation that necessitates acts of geopolitical positioning – especially with regard to the “Global War on Terror” and maintenance of regional peace and stability. Furthermore, oil discovery along the conflict-prone DRC border on Lake Albert and the need for pipelines to the sea to export Ugandan oil will necessitate even greater regional involvement. So while Uganda’s present outward adventurism is primarily because of Museveni’s peculiar personal history, it is correct to say that even after Museveni (still far into the future) the country will continue to be forced to look beyond its borders for economic opportunities, security, and regional stature.
This post originally appeared on the African Development Bank’s Integrating Africa Blog, where yours truly is a regular contributor.
Eastern Africa is the new fossil fuel frontier (for more check out this (pdf) Deloitte report). In the last few years Kenya, Uganda, Tanzania and Mozambique have discovered large quantities of commercially viable oil and gas deposits, with the potential for even more discoveries as more aggressive prospecting continues. There is reason to be upbeat about the region’s economic prospects over the next three decades, or at least before the oil runs out. But the optimism must be tempered by an acknowledgement of the dangers that come with the newfound resource wealth. Of particular concern are issues of governance and sound economic management.
We are all too aware of the dangers of the resource curse. This is when the discovery and exploitation of natural resources leads to a deterioration of governance, descent into autocracy and a fall in living standards. Associated with the resource curse is the problem of the Dutch disease, which occurs when natural resource exports (e.g. oil and gas) lead to an appreciation of the exchange rate, thereby hurting other export sectors and destroying the ability of a country to diversify its export basket. The new resource-rich Eastern African states face the risk of having both problems, and to avoid them they must cooperate.
In many ways Eastern African states are lucky to be late arrivals at the oil and gas game. Unlike their counterparts in Western and Central Africa, nearly all of them are now nominal electoral democracies with varying degrees of institutionalized systems to ensure transparency in the management of public resources. Across the region, the Big Man syndrome is on the decline. But challenges remain. Recent accusations of secrecy, corruption and bribery surrounding government deals with mining companies suggest that there is a lot of room for improvement as far as the strengthening of institutions that enforce transparency (such as parliaments) is concerned. It is on this front that there is opportunity for regional cooperation to improve transparency and resource management.
While it is easy for governments to ignore weak domestic oversight institutions and civil society organizations, it is much harder to renege on international agreements and treaties. A regional approach to setting standards of transparency and accountability could therefore help ensure that the ongoing oil and gas bonanza does not give way to sorrow and regret three decades down the road. In addition, such an approach would facilitate easier cross-border operations for the oil majors that are currently operational in multiple countries, not to mention drastically reduce the political risk of entering the region’s energy sector. It would also leave individual countries in a stronger bargaining position by limiting opportunities for multinational firms to engage in cross-border regulatory arbitrage.
The way to implement regional cooperation and oversight would be something akin to the African Peer Review Mechanism, but with a permanent regional body and secretariat (perhaps under the East African Community, EAC). Such a body would be mandated to ensure the harmonization of laws to meet global standards of transparency and protection of private property rights. The body would also be mandated to conduct audits of national governments’ use of revenue from resources. The aim of the effort would be to normalize best practices among states and to institute a global standard for states to aspire more – more like the way aspirations for membership in the European Union has been a catalyst for domestic reforms in the former Yugoslavia and Eastern Europe.
Regional cooperation would also provide political cover to politicians with regard to economically questionable fuel subsidies. The realities of democratic government are such that politicians often find themselves forced to concede to demands for fuel subsidies from voters. But history shows that more often that not subsidies come at an enormous cost to the economy and instead of benefitting the poor only benefit middlemen. In addition, as the case of Nigeria shows, once implemented such policies are never easy to roll back both due to politics and the power of entrenched interests. Regional agreements capping any fuel subsidies at reasonable levels would be an excellent way to tie politicians’ hands in a credible manner, while at the same time providing them with political cover against domestic criticism.
Beyond issues of governance, there is need for cooperation on regional infrastructure development in order to reap maximum value for investment and avoid unnecessary wastes and redundancies. Landlocked Uganda and South Sudan will require massive investments in infrastructure to be able to access global energy markets. The two countries’ oil fields are 1,300 km and 1,720 km from the sea through Kenya, respectively. One would hope that as these projects are being studied and implemented, there will be consideration for how to leverage the oil and gas inspired projects to cater to other exports sectors – such as agriculture, tourism and light manufacturing – as well. KPMG, the professional services firm, recently reported that transportation costs eat up as much as 20 per cent of Africa’s foreign exchange earnings. There is clearly a need to ensure that the planned new roads and railways serve to reduce the cost of exports for all outward oriented sectors in the region. Embedding other exports sectors (such as agriculture, timber, domestic transport, etc.) in the process of developing new transportation infrastructure will minimize the likelihood of their being completely crowded out by the energy sector.
In isolation, each country’s resource sector policy is currently informed by domestic political economy considerations and regional geo-politics. There is an emerging sense of securitization of resources, with each country trying to ensure that the exploitation of its resources does not depend too much on its neighbours. Because of the relatively small size of the different countries’ economies, the risk of ending up with economically inefficient but expensive pipelines, roads and railways is real. South Sudan is currently deciding whether to build a pipeline through Kenya (most likely), through Ethiopia, or stick with the current export route for its oil through Sudan (least preferred due to testy relations). For national security and sovereignty reasons, Uganda is planning on a 30,000-barrel per day refinery in Hoima, despite warnings from industry players that the refinery may not be viable in the long run. Some have argued for the expansion of East Africa’s sole refinery in Mombasa to capture gains from economies of scale, an option that Uganda feels puts its energy security too much in Kenya’s hands.
In the meantime, Kenya and Tanzania are locked in competition over who will emerge as the “gateway to Eastern Africa,” with plans to construct mega-ports in Lamu and Tanga (Mwambani), respectively. While competition is healthy and therefore welcome, this is an area where there is more need for coordination than there is for competition among Eastern African governments. The costs involved are enormous, hence the need for cooperation to avoid any unnecessary redundancies and ensure that the ports realize sufficient returns to justify the investment. Kenya’s planned Lamu Port South Susan Ethiopia Transport Corridor (LAPSSET) project will cost US $24.7 billion. Tanzania’s Mwambani Port and Railway Corridor (Mwaporc) project will cost US $32 billion.
Chapter 15 of the EAC treaty has specific mandates for cooperation in infrastructure development. As far as transport infrastructure goes, so far cooperation has mostly been around Articles 90 (Roads), 91 (Railways) and 92 (Civil Aviation and Air Transport). There is a need to deepen cooperation in the implementation of Article 93 (Maritime Transport and Ports) that, among other things, mandates the establishment of a common regional maritime transport policy and a “harmonious traffic organization system for the optimal use of maritime transport services.”
The contribution of inefficient ports to transportation costs in the regional cannot be ignored. Presently, the EAC’s surface transportation costs, associated with logistics, are the highest of any region in the world. According to the African Development Bank’s State of Infrastructure in East Africa report, these costs are mainly due to administrative and customs delays at ports and delays at borders and on roads. Regional cooperation can help accelerate the process of reforming EAC’s ports, a process that so far has been stifled (at least in Kenya) by domestic political constituencies opposed to the liberalization of the management of ports. The move by the East African Legislative Assembly to pass bills establishing one-stop border posts (OSBPs) and harmonized maximum vehicle loads regulations is therefore a step in the right direction.
Going back to the issue of governance, more integrated regional cooperation in the planning and implementation of infrastructure development projects has the potential to insulate the projects from domestic politics and patronage networks that often limit transparency in the tendering process. Presently, Uganda is in the middle of a row with four different Chinese construction firms over confusion in the tendering process for a new rail link to South Sudan and port on Lake Victoria. The four firms signed different memoranda with different government departments in what appears to be at best a massive lapse in coordination of government activities or at worst a case of competition for rents by over-ambitious tenderpreneurs. This does not inspire confidence in the future of the project. A possible remedy to these kinds of problems is to have a permanent and independent committee for regional infrastructure to oversee all projects that involve cross-border infrastructure development.
In conclusion, I would like to reiterate that Eastern Africa is lucky to have discovered oil and gas in the age of democracy, transparency and good governance. This will serve to ensure that the different states do not descend into the outright kleptocracy that defined Africa’s resource sector under the likes of Abacha and Mobutu in an earlier time. That said, a lot remains to be done to ensure that the region’s resources will be exploited to the benefit of its people. In this regard there is a lot to be gained from binding regional agreements and treaties to ensure transparency and sound economic management of public resources. Solely relying on weak domestic institutions and civil society organizations will not work.
This quote from The Independent says it all:
……. In 2010 Bushenyi district was split into five districts. In the 2009/10 financial year, the old Bushenyi had a budget of Shs 1.64 billion for UPE and Primary healthcare (non-wage) of which Shs214 million was for administrative costs.
When it was split, the mother Bushenyi got Shs482 million. Of this, administrative costs were Shs241 million (due to wage increases). Mitooma district got Shs365 million of which administrative costs were Shs201 million; then Rubirizi got Shs198 million of which administrative costs were Shs136 million; Sheema got Shs403 million with administrative costs of Shs160 million; and Buhweju got Shs175 million of which Shs 126 million went to administrative expenses.
The total central government grant to the “region” of the old Bushenyi remained the same. But the administrative costs now grew from Shs241 million to Shs865 million – that is money diverted from providing public goods and services to citizens to paying the salaries of elites – civil servants and politicians – in these areas.
Theoretically, in an electoral democracy like ours, voters should reject this arrangement in favour of services. Yet a study by the London School of Economics found that whenever a district is created, Museveni’s support increases by 3% in the mother district and 5% in the new.
It’s clear that Museveni’s preferred method of keeping Ugandans (and especially the political elite) happy is not sustainable in the long run. Mr. Museveni does not operate outside the laws of economics, and soon enough he will hit the glass wall of finite resources. Uganda’s rising patronage inflation might soon explode into patronage hyper-inflation (I think most reasonable people would find it insane to have over 70 ministers).
In addition, a crazy number of MPs are broke (the president recently had to step in to stop them from selling their debt to a Chinese firm), and might demand for even thicker brown envelopes or sacks of cash in order to continue playing ball with State House.
The oil in Bunyoro will definitely buy President Museveni time. But for how long, and at what cost?
Going back to pre-2001 “no party” authoritarianism would be a very costly option. The horrors of pre-Museveni Uganda are slowly being archived by time; and can no longer sell among Uganda’s younger generation who might prefer to think of Uganda’s future potential rather than what Museveni saved them from.
All this makes for interesting politics in Uganda ahead of the 2016 elections.
H/T Andrew Mwenda
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.
Is LAPSSET under threat? May be.
The Economist reports:
The Lamu pipeline makes the most economic sense for all involved. But failure to work together may doom it. National and personal interests trump regional co-operation and commercial logic. In Uganda Mr Museveni is keen to settle his legacy as the champion of a strong nation, building vast refineries and spiting the tiresome Kenyans. South Sudan is fixated on warding off the north at the expense—it seems—of almost everything else. Ethiopia sees a chance to steal Kenya’s thunder, too. “It’s every guy for himself,” says an oil executive wryly. “And I thought the private sector is rough.” Pipeline politics makes a mockery of the East African Community, a bloc dedicated to regional co-operation. All but one of the countries are members or aspire to join.
Of late, a new momentum behind the oil push is being felt. The Ugandan government is in final production talks with three oil companies. Executives from Tullow, Total and the China National Offshore Oil Corporation (better known as CNOOC), as well as local civil servants, conferred with Mr Museveni at his farm near the Rwandan border in late April. In June South Sudan will finish a feasibility study for the Ethiopian pipeline to Djibouti, after which it has said it will make a decision on export routes. “Everything is up in the air,” says a diplomat. Kenyan and Ethiopian officials, as well as oil-company representatives, have been scurrying to Juba to make their case. Pagan Amun, who leads South Sudan’s talks with the north, is said to be keen to ditch the Lamu pipeline.
My guess is that Nairobi, for historical reasons, will prevail in Juba. Plus Juba and Addis are not the best of buddies, despite recent warm relations. Mengistu was a key ally and supplier of SPLM before he was overthrown by Meles and his army. The departure of Meles may have made things a little better. Time will tell. Uganda will most likely construct a mini-refinery as it is not integral to the implementation of LAPSSET.
The Daily Nation reports:
Ugandan President Yoweri Museveni has said UN peacekeeping missions [especially in the DRC] are derailing efforts by African governments to end conflicts.
He criticised the UN system of peacekeeping saying: “External support by the UN makes governments lazy and they don’ t focus on internal reconciliation.”
“The mistake is internal actors with no correct vision and the UN which does not focus on internal capacity building but instead focusing on peace keeping all the time. Without the internal solutions, you can’t have peace, ” Mr Museveni said in a statement on Thursday.
Some Congolese and experts on the DRC may disagree with Museveni’s analysis but it has some truth to it. As I pointed out in an African Arguments post several months ago, there is no short cut to fixing the Congo. State capacity development must be THE overriding concern (for more on this see here and here).
Also, The International Crisis Group has a nice piece on the recent takeover of the mining town of Lubumbashi by Mai-Mai fighters. The writer notes:
Since President Joseph Kabila’s controversial election victory in November 2011, government control over DRC territory has been in drastic decline. Beyond the fall of Goma to the M23 rebellion, Kinshasa has failed to repel the activities of various other armed groups: the Mai-Mai Morgan in Province Orientale, the Ituri Resistance Patriotic Front (FRPI) and the Mai-Mai Yakutumba in South Kivu, Rayia Mutomboki in North and South Kivu, as well as the Mai-Mai Gédéon in Katanga. (On the eastern Congo armed groups, see the October 2012 briefing Eastern Congo: Why Stabilisation Failed. On the Katanga armed groups, see the report Katanga: The Congo’s Forgotten Crisis.)