Former HIPC countries are back in the red

The Journal reports:

Mozambique was one of the biggest benefactors of debt forgiveness, with its debt slashed from 86% of gross domestic product in 2005 to 9% the next year. The country has built it back up since then to 61% of GDP.

Ghana’s debt was 82% of GDP in 2005 just before the international community forgave about half of it. It’s now up to 73% of GDP and growing, according to the IMF.

The burgeoning debt burdens are putting more pressure on African budgets. The cost of servicing Ghana’s debt will consume nearly 40% of government revenue this year, according to an analysis by Fitch Ratings — twice what is considered sustainable under the rule of thumb used by the IMF and many analysts.

More on this here and here and here.

Africa’s looming debt crises

The 1980s are calling. According to Bloomberg:

Zambia’s kwacha fell the most on record after Moody’s Investors Service cut the credit rating of Africa’s second-biggest copper producer, a move the government rejected and told investors to ignore…..

Zambia’s economy faces “a perfect storm” of plunging prices for the copper it relies on for 70 percent of export earnings at the same time as its worst power shortage, Ronak Gopaldas, a credit risk analyst at Rand Merchant Bank in Johannesburg, said by phone. Growth will slow to 3.4 percent in 2015, missing the government’s revised target of 5 percent, Barclays Plc said in a note last week. That would be the most sluggish pace since 2001.

The looming debt crisis will hit Zambia and other commodity exporters hard. As I noted two years ago, the vast majority of the African countries that have floated dollar-denominated bonds are heavily dependent on commodity exports. Many of them are already experiencing fiscal blues on account of the global commodity slump (see for example Angola, Zambia and Ghana). This will probably get worse. And the double whammy of plummeting currencies and reduced commodity exports will increase the real cost of external debt (on top of fueling domestic inflation). I do not envy African central bankers.

Making sure that the looming debt crises do not result in a disastrous retrenchment of the state in Africa, like happened in the 1980s and 1990s, is perhaps the biggest development challenge of our time. Too bad all the attention within the development community is focused elsewhere.

A Commentary on Research Priorities in Development Economics

Over at the Bank’s Future Development blog, Princeton Economist Jeffrey Hammer writes:

The Chief Minister posed serious questions that have traditionally been the bread and butter of the economics profession. Unfortunately, we are not even trying to answer them any more. The specific question was “Should I put more money into transport? Infrastructure (power, roads, water)? Law and order? Social services? Or what? And where am I going to get the money?” What questions could be more solidly part of the core of economics than these? Unfortunately none of these were even remotely the focus of the “evidence-based” policy making discussed.

Almost all of the cases analyzed were  single, simple policy “tweaks” that were, first of all, isolated from the broader market context in which they occurred and, second, had no conception of opportunity cost – what we would have to give up to pursue these things? We had an answer to “how to improve a public food distribution system” but even with a precise answer (to whether a tweak would work) we had no idea whether the substantial amount of money funding such a system is a good idea. Maybe the Chief Minister would be better off improving education or road networks or police or rural electricity. Some of these alternative policies could have more impact on food consumption than food distribution if we thought about how the world worked. Getting food to market securely (roads, better cold storage, trustworthy police and safe roads – this is Pakistan, which no one seemed to notice) may increase food availability much more than any tunnel-visioned food program Or not – maybe the food distribution system is better. We just don’t know. And none of us “experts” are trying to find out.

When someone says “we should have more “X” because we have evidence that it works”, the response should be “compared to what?” What should we cut in order to promote your particular interest? My hobby horse these days is more sanitation in South Asia. I should have to defend it against (at least) a few alternatives.

What’s your justification for your latest hobby horse?

My take on the gap highlighted by Hammer is that what is good for reviewers is seldom useful to policymakers. The incentive for academics is to publish. And this will always be reflected in the design and implementation of interventions headed by academics. This is not necessarily a bad thing [For obvious reasons we should firewall academic research from the actual process of policymaking. The latter should be the political process that it is, albeit informed by the former]. I think the widespread acceptance of rigorous evidence-based policymaking has been a net benefit for the developing world. What it means though, is that the “public sector” development research community — i.e. the IMF, the World Bank, & host country research institutes — should do more to ensure that funding for hyper-targeted interventions do not detract from broader macro research (like, when and why did the rain start beating Ghana?)

However, in the long run, developing countries will be better served by having more and more of their own/country-based politically relevant macroeconomists.

This is because answering the types of questions posed by Hammer requires one to also take a political stand (on account of a lack of consensus among economists). Economists who can’t do this will invariably resort to “technical” solutions that can be perceived as “apolitical” by both host governments and the sponsoring foreign development agencies. Again not necessarily a bad thing, just a reflection of the politics of knowledge production.

H/T William Easterly.

The potential impact of a Chinese slowdown on Africa’s economies

The FT reports:

For Africa’s non-oil exporters, the collapse in crude prices has provided a cushion. But, with many African countries import-dependent, the depreciation of currencies affects inflation and the cost of imports. It will also put a strain on those nations that have taken advantage of investors’ search for yields to tap into international capital markets.

The likes of Zambia, Ethiopia, Rwanda, Kenya, Ghana, Senegal, and Ivory Coast have all issued foreign currency dominated sovereign bonds in recent years. “In the past, foreign exchange weakness in Africa was largely shrugged off. Economies adapted and found a way to cope with it, but the recent surge in eurobond issuance has been a game-changer,” says Razia Khan, chief economist for Africa at Standard Chartered.

“Now, when currencies depreciate, external risks are magnified, public debt ratios rise, and perceptions of sovereign creditworthiness alter quite dramatically.”

Prof. Deborah Brautigam of SAIS sees the following happening:

  • Prices for African commodities will worsen, then improve. In recent years, China’s slower growth has pushed down prices for gold, crude oil, copper, platinum and iron ore. South Africa’s mining sector was expected to lose over 10,000 jobs due to lower demand
  • Africa will import even more from China. Cheaper Chinese exports will please African consumers while putting Africa’s manufacturers at a further disadvantage. There will be more pressure for tariff protections
  • [L]ow wages in Ethiopia and elsewhere had been attracting significant factory investment from China. With costs now relatively lower in China, the push to relocate factories overseas will slow. This will save Chinese jobs, but postpones Africa’s own structural transformation.

And concludes that:

In the short term it is hard to see how this devaluation can help Africa, notably its productive and export sectors.

The thing to note is that different African countries have different kinds of exposure to China. The commodity exporters (both petroleum and metals) will be hit hard. The effects will be somewhat attenuated in countries exposed primarily through Chinese FDI and infrastructure loans. Domestic fiscal reorganization and resources from the AfDB and other partners should plug a fair bit of the hole left by declining Chinese investments (although certainly nowhere near all of it). And with regard to sovereign debt, a Chinese downturn might persuade the US Central Bank to delay its planned rate hike — which would be good for African currencies and keep the cost of borrowing low.

Lastly, for geopolitical reasons I don’t see China rapidly reducing its footprint on the Continent. In any case, as Howard French makes clear in his latest book, there is a fair bit of (unofficial) private Chinese investment in Africa. Turmoil back home may incentivize these entrepreneurs to plant even deeper roots in Africa and expatriate less of their profits. The net result will be slower growth in Africa. And like in China, slower growth will challenge prevailing political bargains in democracies and autocracies alike.

Quick thoughts on presidential term limits and the political crisis in Burundi

The president of Burundi is about (or not) to join the list of African leaders who have successfully overcome constitutional term limits in a bid to hang on to power. Currently (based on observed attempts in other African countries and their success rate) the odds are roughly 50-50 that Mr. Pierre Nkurunziza will succeed. The last president to try this move was Blaise Compaore of Burkina Faso who ended up getting deposed by the military after mass protests paralyzed Burkina’s major cities.

Successful term limit extensions have so far happened in Burkina Faso (first time), Cameroon, Chad, Djibouti, Gabon, Guinea, Namibia, Togo, and Uganda. Presidents have also tried, but failed, to abolish term limits in Burkina Faso (second time), Malawi, Niger, Nigeria, Senegal, Zambia. Countries that are about to go through a term limit test in the near future include Angola, Burundi, Republic of Congo (Congo-Brazzaville), the Democratic Republic of Congo (DRC), Liberia, Rwanda, and Sierra Leone. Heads of State in Benin, Cape Verde, Ghana, Kenya, Mali, Mozambique, Sao Tome e Principe, Tanzania, and Namibia (after Nujoma) have so far obeyed term limits and stepped down at the end of their second constitutional terms.

To the best of my knowledge only Sudan, The Gambia, Equatorial Guinea, and Eritrea have presidential systems without constitutional term limits. Parliamentary systems in South Africa, Lesotho, Swaziland, Ethiopia, and Botswana do not have limits, although the norm of two terms exists in Botswana and South Africa (and perhaps soon in Ethiopia?).

So what we see in the existing data is that conditional on *overtly* trying to scrap term limits African Heads of State are more likely to succeed than not (9 successes, 6 failures). However, this observation doesn’t tell us anything about the presidents who did not formally consider term limit extensions. For instance, in Kenya (Moi) and Ghana (Rawlings), presidents did not initiate formal debate on the subject but were widely rumored to have tried to do so. So it’s probably the case that presidents who are more likely to succeed self-select into formally initiating public debate on the subject of term limit extension, thereby tilting the balance. And if you factor in the countries that have had more than one episode of term-limited presidents stepping down, suddenly the odds look pretty good for the consolidation of the norm of term limits in Sub Saharan Africa.

I wouldn’t rule out, in the next decade or so, the adoption of an African Union resolution (akin to the one against coups) that sanctions Heads of State who violate constitutional term limits.

So will Nkurunziza succeed? What does this mean for political stability in Burundi? And what can the East African Community and the wider international community do about it? For my thoughts regarding these questions check out my post for the Monkey Cage blog at the Washington Post here.

Correction: An earlier draft of this post listed Zimbabwe as one of the countries without term limits. The 2013 Constitution limits presidents to two terms (with a minimum of three years counting as full term (see Section 91).

Battle Hymn of the Research Experts (circa 1959)

The poem was published anonymously in the Northern Rhodesian Journal (in present day Zambia) in 1959.

Some talk of race relations, and some of politics,
Of labour and migrations, of hist’ry, lice and ticks,
Investments, trends of amity
And patterns of behaviour
Let none treat us with levity
For we are out to save ‘yer.

When seated in our library-chairs
We’re filled with righteous thought’ho,
We shoulder continental cares

Tell settlers what they ought to,
We’ll jargonize and analyse
Frustrations and fixations,
Neuroses, Angst, and stereotypes
In structured integration.

Strange cultures rise from notes and graphs
Through Freud’s and Jung’s perception
Despite your Ego’s dirty laughs
We’ll change you to perfection,
We’ve read Bukharin, Kant, and Marx
And even Toynbee’s stories
And our dialect’cal sparks
Will make exploded the Tories.

Rhodesians hear our sage advice
On cross-acculturation,
On inter-racial kinship ties
And folk-away elongation,
On new conceptual frame works high
We’ll bake your cakes of custom,
And with a socialising sigh
We’ll then proceed to bust ‘em.

Our research tools are sharp and gleam
With verified statistics,
Our intellectual combat team
Has practiced its heuristics
From value judgements we are free,
We only work scientific
For all-round global liberty
and Ph.D.s pontific.

Source: Jim Ferguson’s must read Expectations of Modernity, p. 30

Netflix is making thousands of Americans flunk geography

You can’t make this stuff up:

Screen Shot 2015-02-03 at 8.01.17 PM

The show began to air in 2010. This is its description as of February 3rd, 2015.

That said, if you have to visit Africa, the place to go is KENYA!

Because of this:

HT Hayes Brown

Is Nigeria’s Economy Overrated?

Here is Izabella Kaminska of the FT:

Source: Financial Times

Source: Financial Times

On the surface, Nigeria’s oil sector has dropped in significance to a mere 13% of real GDP, while the services sector has climbed to 40% in real terms. Yet, the reality is that it is the country’s oil revenues that have supported growth and, to a large extent, maintained social order. Without oil, both would fall apart; government spending would be much smaller, interest rates much higher, and the currency’s valuation much lower.

….. the country’s domestic savings rate, at a measly 20 per cent of GDP, is extremely low for a developing economy at this stage. A key reason being the government’s inability to tame chronically high inflation, meaning bank deposits have earned negative real interest rates for most of the past decade.

More on this here (HT Tyler Cowen).

And by the way, on this score Nigeria is not alone.

In an instance of the triumph of hope over experience The Economist recently pronounced the end of the resource curse in Africa. I do not completely buy their argument. Yes, growth and investment across the Continent may no longer be tightly coupled with natural resource cycles. But from Ghana, to Zambia, macro-economic stability (and important aspects of social spending) are still very tightly tied to movements in the global commodity markets.

Furthermore, many of these countries have recently re-entered the global debt markets partly backed by primary commodities as surety. The same applies to debts owed to Beijing. Last year alone foreign debt issues in the region exceeded $6.5b. As I argued in June of 2013, we might be entering another pre-1980s debt bubble.

Tanking crude prices have put Angola on the ropes. The country recently slashed $14b of previously planned spending. The Cedi and Kwacha took a nosedive (26% and 13%, respectively) last year because of sagging commodity prices (gold and copper) and government deficits (fueled by the expectation of future commodity bonanzas, especially in the case of Ghana whose debt to GDP ratio is now a staggering 65%). Even well-balanced Kenya (also a recent eurobond issuer) has had to go to the IMF for a precautionary loan against currency-related shocks in the near future. The current situation has prompted ODI to warn that:

The exchange-rate risk of sovereign bonds sold by sub-Saharan African governments between 2013 and 2014 threatens losses of $10.8 billion, equivalent to 1.1 percent of the region’s gross domestic product, the ODI said. While Eurobonds are typically issued and repaid in dollars, the depreciation of local currencies in 2014 makes it harder for governments to repay them.

All this brings to the fore SSA’s biggest challenge over the next two decades: How to carry out massive investments in infrastructure and human capital, while at the same time maintaining a sustainably balanced macro environment that is conducive to long-term saving.

On the Zambian Presidential By-Election

Zambians go to the polls today to elect a president to serve the remainder of the late Michael Sata’s term. President Sata died on the 28th of October, 2014. The winner of the by-election will be office until late 2016 when when elections are due for both the presidency and the National Assembly.

Today’s contest is between the two front-runners: Edgar Lungu, the candidate of the ruling Patriotic Front (PF); and Hakainde Hichilema (HH), the candidate of the United Party for National Development (UPND). Lungu has the advantage of incumbency, and a favorable electoral map (interim president Guy Scott is constitutionally barred from running). As the table below shows, support for Sata in the last election (2011) was concentrated in provinces that were both vote-rich (column 7) and recorded high turnout (column 5). HH’s support has historically been strongest in his native Southern Province and the vote-poor Western and Northwestern Provinces. He is also competitive in Central Province.

Presidential Election Results (2011)
Province Sata (PF) Banda (MMD) Hichilema (UPND) Turnout Turnout (2008) Vote Share (Ascending)
Northwestern 10.85 50.21 35.24 54.88 42.7 6.249513033
Western 23.12 33.2 28.21 47.77 38.4 6.800182089
Luapula 73.54 22.9 0.85 50.49 37.8 7.447270534
Central 28.28 48.21 20.82 46.87 40.6 8.149764957
Eastern 18.46 72.6 3.33 49.89 40.5 11.60268286
Southern 6.59 19.15 71.41 58.04 49.8 13.47451036
Northern 64.18 32.16 0.78 57.28 44.6 13.62680466
Lusaka 55.94 30.76 11.29 52.05 50.7 14.50255098
Copperbelt 67.88 26.22 3.57 59.5 52.8 18.14672051

HH’s chances will depend on whether the fallout within PF (Lungu’s nomination did not occur without incident) and the implosion of MMD produce a swing in his favor. Disaffected MMD supporters will therefore be a critical swing bloc. Furthermore, ahead of the elections Hichilema managed to get the endorsement of Geoffrey B. Mwamba (GBM), a former minister in the Sata government. But it is unclear whether GBM will be able to sway voters in his native north of the country, which voted solidly for Sata in 2011 (see map below). Sata, like GBM, was from Northern Province (since divided into Northern and Muchinga Provinces).

Sata constituency level vote share (% of votes cast)

Sata constituency level vote share (% of votes cast)

A low turnout today will favor PF. In the last presidential by-election (in 2008) turnout was 45.43%, 8 percentage points lower than the 53.65% recorded in the 2011 General Election. PF, with its wide support in the more urbanized Copperbelt and Lusaka (see map and table, column 6), therefore enters the race with a distinct advantage. If Hichilema is to have a chance he must not lose the turnout contest, and at the same time win by wide margins in the northwest, west and south of the country.

Of course the biggest unknown is whether Lungu can attract the same level of support as did Sata in 2011 (I lean towards him getting a sizable sympathy vote). Lungu is new to the presidential race, while HH has run multiple times. HH therefore has an assured strong base in the south (and possibly west) and better name recognition across the country. So despite PF’s incumbency status (which is no small matter), in many ways this is an open race.

From a research perspective, I’ll be keen to observe how the map above changes once all the votes are in. Which regions of the country will swing out of the PF column? Will the MMD survive this election? Can HH break out of his “Southern” tag?

Whatever the results, this by-election is a warm-up to what promises to be a very exciting General Election in 2016 (Also, I hope to have opinion poll data to play with ahead of the 2016 contest).

And now onwards with life after fieldwork…

With findings and humility.

And now onwards with life after fieldwork...