electoral democracy and inflation in africa

UPDATE: A related paper is here. [HT Julie]

Central bank independence is still the exception rather than the rule in most of Africa. This then raises the question of what effects elections – with the high associated costs of buying votes – have on the inflation rate.

For instance, Uganda has been experiencing inflation (a.k.a walk to work) riots following Museveni’s reelection. Many in Uganda and beyond have attributed the hike in the cost of living not just to global trends (food and oil prices) but also to Museveni’s massive reelection budget. Just before the Ugandan elections in February the president doled out cash like he was “printing his own money.”

Next door in Kenya rumors abound that the recent hike in oil prices, the failure to resettle IDPs and other forms of grand corruption are related to politicians amassing a war chest for next year’s general election.

This raises the question: Is there a correlation between election years and inflation in Africa?

My first stab at this reveals rather weak correlations between election years and trends in inflation rates in a number of African states. (Shown below are Kenya, Uganda and Tanzania, Senegal). The vertical dotted lines indicate election years.

In the regressions different lags produce different results.

That said, it appears that competitive elections are significantly correlated with hikes in the inflation rates for up to three years (elections are “competitive” if the incumbent gets less than 2/3 of the vote).

Given the fact that Museveni’s vote share was trending downward in 1995, 2001 and 2006 (75%, 69% and 59% respectively), the NRM leader must have panicked and opened the floodgates for this past election.

Election monitoring and international sanctions against cheating have made the stealing of elections a very costly endeavor. But politicians are smart. If you can’t stuff the ballot boxes you can certainly intimidate voters or buy them off.

My hope is that with time the buying off of voters option will become institutionalized and made impartial to party ID.

tapping africa’s potential

As promised here’s a brief note on the conference on Africa at Stanford.

Most of the speakers (esp. Fred Lwaniker of the Africa Leadership Academy and former HP CEO Carly Fiorina) reiterated Achebe’s take that the trouble with Africa is simply and squarely a problem of leadership. There is hope though. People like Lamido Sanusi, Nigeria’s central bank governor and the current central banker of the year. Mr. Sanusi has played a major role in cleaning up the Nigerian banking sector in the aftermath of the financial crisis.

Chris Udry of Yale talked about the all important agricultural sector in Africa. Over 60% of Africans depend on agriculture for their livelihood. The sector has however been largely ignored on the Continent over the last three decades. In personal conversations with Chris he pointed out that this is illustrated by the number of Agricultural Economics PhDs graduating these days. His takeaway point was that African agriculture can be strengthened by having strong land tenure systems, adoption of fertilizer and other farm implements and by availing finance to farmers. All these efforts will, however, require consolidation of farming. Mechanization on a small scale is expensive. Plus no bank will finance a farmer with one acre and two cows.

The third and last broad theme of the conference addressed the investment opportunities in Africa. Business leaders from fields as diverse as ICT, consulting, finance and social entrepreneurship talked about the high margins and potential for return on investment. Most importantly, these business leaders noted that the challenges to investment and growth in the region can be overcome. MTN is operating a successful mobile operation in Nigeria despite the country’s power woes. Finance is thriving in Kenya despite high levels of corruption. For the most part the high margins more than make up for these high operating costs.

africa is open for business

There has been a lot of positive talk about business in Africa lately.

Mckinsey came out with its big report in June 2010. That was followed by the release of Steve Radelet’s Emerging Africa, a story of the 17 African countries that have the political and economic fundamentals right. Most recently the Economist has highlighted the fact that among the top ten fastest growing economies in the world over the next decade, seven will be African.

Keeping in the same vein the innovative African Leadership Academy has organized a conference at the Stanford Institute for Economic Policy Research (SIEPR).

The keynote address this morning was by Jeff Sachs via skype. Sachs noted that microfinance was oversold to the global south and that the current backlash is sort of warranted, but that it is overblown.

He also pointed out, rightfully, that pro-poor growth as currently understood “cannot refashion the economy.”

I oftentimes disagree with Sachs’ proposals for ending poverty, but on this point (and as I have written before) he is right. The eradication of poverty in Africa is contingent on sustainable job creation by SMEs and big business.

Other big names at the conference include the Bank’s Devarajan, Mckinsey’s Leke, Africa.com’s Clarke, Chris Udry of Yale, Paul Romer of Stanford, among others.

The conference website is here.

More on this later tonight (west coast time).

general kianga should be a little bit embarrassed by this

The Kenyan army is one of the most professionalized on the Continent. When their counterparts across the region were going nuts with politics through most of the 60s, 70s and 80s they opted instead to stay in the barracks. The coup attempt of 1982 died before it began. Just to illustrate how disinterested they are in politics, many Kenyans, including yours truly, cannot name the top generals in the armed forces.

But I think they are taking their dormancy too far. Uganda illegally occupied the Kenyan island of Migingo a while back. Now they are trying to annex yet another Kenyan island.

Most recently the Daily Nation is reporting that a group of Ethiopian tribesmen who attacked and killed 20 Kenyans within Kenyan territory stopped Kenyan officials from visiting a Kenyan village on the Kenyan side of the border.

“Prime Minister Raila Odinga and five Cabinet ministers were barred from accessing a Kenyan village occupied forcibly by Ethiopian tribesmen for fear of being attacked.”

Really? Seriously?

Where is the Kenyan army?

africans should hold their noses and support the icc

Quoting the Economist:

These days the ICC’s biggest opponents are in Africa, which provides the court with its biggest group of members (31 out of 114) and is the scene of all the cases currently being investigated or prosecuted: in the CAR, Congo, Côte d’Ivoire, Kenya, Libya, Sudan and Uganda. Accusing the court of unfairly targeting African countries, the 53-member African Union (AU) is again calling for “African solutions to African problems”. It particularly dislikes the court’s increasing willingness to go after sitting presidents. At its summit next month it plans to extend the authority of its African Court of Justice and Human Rights to cover criminal as well as civil cases. International lawyers such as Richard Dicker of Human Rights Watch, a New York-based lobby, see this as an attempt to circumvent the ICC.

It may not work. The reason so many African cases are before the court is not because of bias; all the ICC’s cases have been referred to it either by the UN Security Council or by the countries themselves. It is because the standards of justice in Africa are often poor. Courts in many parts of the continent are packed with pliant judges keen to do their masters’ bidding. Moreover, attempts to create a regional system of African justice have so far failed. The African Court, under the AU’s aegis, has never issued a ruling of note. The AU’s pledge to ensure that Hissène Habré, held responsible for thousands of deaths as Chad’s president in the 1980s, is brought to justice has not been fulfilled. The Southern African Development Community’s tribunal, set up in 2005, has been virtually suspended since Zimbabwe refused to accept its ban on the expropriation of white farms and the 15-country regional club proved reluctant to enforce its rulings.

Many across the Continent have opposed international involvement in Africa’s affairs. Most of these Afro-nationalists have been dictators and those who depend on them, with a few true African nationalists on the fringe. My take is that Africa needs a conscience, regardless of where it comes from. As things stand tiny Botswana is the only nation that aspires to stand for justice. President Khama has condemned Mugabe, Bashir and those of their ilk.

South Africa, Nigeria, Ethiopia and the DRC, all potential continental leaders by virtue of their size, have been dismal failures at this task.

The ICC might be misguided in its attempts to decouple justice and politics. It might even bring terrible memories of the pre-sixties for those of our parents’ generation (calls of neocolonialism are all over the place). It may also be patently biased against African autocracy. But for now it is all most African peasants have against the goons that run their countries. Those who care about justice and accountability on the Continent should hold their noses and support the efforts of the court to give a voice to the voiceless.

development in southern sudan

Blattman stresses the importance of security, stability and predictability over other forms of intervention.

States, like people, have attention problems, only more extreme. The new government may only accomplish one or two big things in their first five years. If, fifty years hence, we want the poor of South Sudan to prosper, paradoxically the last thing we need to do is push for the Millennium Development Goals today.

give every incentive for elites, especially the ones apt to war, to invest in fixed assets whose value depends on stability and growth. Make them entrepreneurs. Oil rigs don’t count. Property in Juba does. So do plantations and small factories, even if they need subsidies to operate at first. This is hard, and will require attention and dedication.

With these accomplished, I’d next aim for economic growth. Which may or may not involve pro-poor transfers. Given the choice between three big resource firms and 1000 microenterprises, I’d choose the firms. (And remember: I work on fostering post-conflict microenterprises for a living.)

My two cents on this:

This is absolutely right. But with the caveat that the security hawks should be watched. They tend to overstay their welcome. Rwanda, Uganda and Ethiopia needed security more than a decade ago. Now their saviors, Kagame, Museveni and Zenawi, respectively, are quickly turning into latter day Bokassas.

perspective: land issues in Kenya and zimbabwe

This quote made me pause for a moment:

“As seen in this work, the naked exploitation of land rights has a far longer and more illustrious history in Kenyan than in Zimbabwe. Further, the human cost of such exploitation of land rights in Zimbabwe pales in comparison to Kenya. Human Rights Watch, which is not known to underestimate rights abuses, reports that, by the year 2000 seven white farmers and several tens of black farmers had been killed in Zimbabwe in such violent exploitation of land rights. By the year 2000, these activities in Kenya had resulted in the deaths of thousands and displaced hundreds of thousands”

That is Onoma in his book on the Politics of Property Rights Institutions in Africa.

Notice that the figures quoted do not include the victims of Kenya’s 2007-08 post election violence. 1300 died, and just over 300,000 were displaced.

In 1980 6000 (white) Zimbabweans owned 42% of the land in the country. How anyone, including the white farmers, thought this was sustainable in the long run beats me.

In some sense Zimbabwe was inevitable. South Africa is next.

Kenya: The Private Sector Still Has Faith in the system

The Kenyan economy is expected to grow by 4.3% this year. That is a downgrade from 6%, as had been projected by the treasury. Erratic rains, high cost of fuel (Kiraitu Murungi should resign), and general inflation are to blame.

The Shilling has also had a beating in the last few months. While a weak shilling is generally good for exports, it is is terrible for the fuel bill (oil is priced in USD). The Central Bank tried to mop up the excess Shillings in the economy with no avail. Last Saturday when I visited the local Western Union the Shilling was trading at KSHS 80 to the US dollar. Not so long ago the rate was in the low 70s.

The shaky macro-economy aside, the Kenyan private sector is doing OK.

Just the other day mortgage companies announced plans for 100% financing. House prices will definitely go up, at least in the short-run (a.k.a before the bubble bursts due to oversupply). The long-run benefits won’t be trivial. More construction means more jobs, the benefits of the multiplier effects of property, and (crucially and obviously) more houses. The current housing deficit runs in the hundreds of thousands of units per year.

Private sector confidence is also reflected in private sector leveraging. The private sector debt as a fraction of the economy has grown to about 50%. This is the best measure of confidence (in my view). Finance is fickle and thrives on stability. The bosses of Equity (and other banks) will not let the loudmouth tyrants and thieves who parade as democrats adversely affect their bottom line.

Because of its big service sector, future growth in Kenya will be predicated on confidence in the country’s political economy. Remember that Kenya is Africa’s biggest non-mineral economy. South of the Sahara and north of the Limpopo only the oil giants Nigeria and Angola have bigger economies.

For some reason (thereby dis-confirming my fears) the incendiary nature of Kenyan siasa za ukabila (ethnic politics) is not doing that much damage. Two cheers to Kenyan biashara.

foreign acquisitions of land in africa

For half a century they have done nothing but run their economies aground, jail, kill or exile dissidents and steal as much as they could from their economies. All in the name of the people. Now (a subset of) African leaders are busy selling or facilitating the sale of arable African land away – for bio-fuel production or for production of food exportions – while their own people starve.

At this rate the Continent, despite its massive agricultural potential, will remain a net food importer for a very long time to come.

The Economist reports:

THE farmers of Makeni, in central Sierra Leone, signed the contract with their thumbs. In exchange for promises of 2,000 jobs, and reassurances that the bolis (swamps where rice is grown) would not be drained, they approved a deal granting a Swiss company a 50-year lease on 40,000 hectares of land to grow biofuels for Europe. Three years later 50 new jobs exist, irrigation has damaged the bolis and such development as there has been has come “at the social, environmental and economic expense of local communities”, says Elisa Da Vià of Cornell University.

More on this here.

drug trafficking and african politics

UPDATE: Obama names Harun Mwau as a drug kingpin.

President Obama, in a letter to the US Congress, named a prominent Kenyan member of parliament and one of the wealthiest Kenyans, Harun Mwau, as a drug kingpin. Mr. Mwau is a renowned Kenyan businessman with links to container depots, retail and banking interests, among other investments.

I am still waiting for official reaction from the Kenyan government on the Obama letter to the US Congress.

Kenya, Gambia, Ghana, South Africa, Guinea-Bissau, Guinea. All these countries have experienced allegations that people high up in government – sometimes individuals very close to the heads of state – are involved in drug trafficking. Africa is a major transit point for drugs from Latin America and Asia into Europe.

The latest news on this subject is the jailing of Sheryl Cwele, the wife of South Africa’s intelligence minister. Ms Cwele was found guilty of recruiting women to smuggle drugs in and out of the country. It is hard to imagine that the intelligence minister was not aware of the fact that his wife was a drug trafficker.  Cwele refuses to resign.

In the recent past a woman close to President Mwai Kibaki of Kenya was allegedly linked to a ring of East European drug traffickers. The murder of President Joao Vieira of Guinea-Bissau was also thought to be connected to a dispute involving Latin American drug lords. Ghana’s President Atta Mills has publicly admitted that it is hard to deal with the problem of drug trafficking because powerful people in the country’s security apparatus are involved.

The South African, Kenyan and Ghanaian cases are particularly alarming. Most people would imagine that only incorrigibly inept kleptocracies such as Jammeh’s Gambia or Vieira’s Guinea-Bissau would engage in drug trafficking. If better run places with stronger states cannot tackle drug trafficking who will?

africa’s Middle class

Elizabeth Dickinson at FP reports:

Given all this, perhaps the only thing about Africa that isn’t changing quickly is our perceptions of it. There’s an image impressed in all of our minds of a starving child, symobilizing an impoverished continent. If that was ever true, this is an excellent reminder that today, it’s at most a snapshot. Yes, there’s great human suffering and it’s not hard to find. But Africa as a whole is becoming a middle class continent.

It is hard to completely buy Dickinson’s optimism given the fact that Somalia, the DRC, Chad, Central Africa Republic, Sudan, among others are still far from being stable polities. The precarious nature of the stability in the more stable African states such as Uganda, Kenya, Ethiopia, Rwanda e.t.c. are also cause for concern.

That said, the reality is that there are many Africas. Those who fail to internalize that fact continue to do so at their own peril. Just ask the Indians and the Chinese.

quick hits

The long awaited discussion about the real content of higher education in Africa is underway. Be a part of it.

The DRC is getting ahead of itself with elections. One wonders whether holding elections is the wisest thing to do right now. Wars raging in the east. A country the size of western Europe but with the most rudimentary infrastructure. Loads of mineral wealth that create a few billionaires – most of them non-Congoleses – while the real Congolese starve or eke out a living with one eye on the lookout for marauding rebels and government forces thugs. The DRC is one big mess in need of radical clean up. Kabila simply will not do it. But he will win these elections for sure. And that means more instability in the great lakes region.

I just found out that I shall be in Zambia for the election campaigns – elections due in October – so watch this space for stuff on Zambian politics this August and September.

And lastly, China is upping its involvement in the Kenyan economy. According to Business Daily:

Several Chinese manufacturers are already setting up local production plants in Kenya, shifting from the previous strategy in which they supplied the domestic consumer market with goods imported from their home country.

More jobs = lower infant mortality rates. Everybody wins.

fuel shortage in kenya: kibaki administration on the spot

The Kenyan government is frantically trying to avert strikes and demonstrations over the rapidly rising cost of living.

State House and Agip House certainly don’t want a repeat of the recent events in Uganda where inflation demonstrations have turned bloody.

Mr. Atuoli, the number one Kenyan trade unionist, has given the government a three-week strike notice if things do not change. Trade Unions in Kenya are demanding a 60% rise in the minimum wage to just over US $150 a month. Presently that figure stands at around US $94.

The government is also on the spot over corruption and mismanagement of the oil sector. According to the Daily Nation:

Since October last year, the ministry of Energy introduced regulations prohibiting imports of oil outside the ministry of energy-coordinated Open Tender Supply system (OTS).

Under this system, all oil imported into the country, including fuel headed for neighbouring Uganda and Rwanda, must come into the country by one ship, imported by one player and shared by the rest according to market share.

With private imports by individual marketers restricted, all players must patiently wait to get supplies from the next OTS tender, even when their customers want more.

The only exception are the rare cases where politically-favoured  importers are allowed to bring in product from outside the system.

Access to the only pipeline is regulated by an ullage committee under the oversight of the ministry of Energy.

Yet another case of a few Kenyans making loads of chapaa on the backs of regular wananchi.

And speaking of the apparently invincible incompetence of the Kenyan government, dozens of Kenyans were killed by Ethiopians in what the area MP characterized as a regular rite of initiation (“It is in their tradition. After circumcision you must look for a Turkana to prove your manhood.” [Video: 1.53] I say WTF!!!!!!!). The attacks occurred not far from a police post. Such attacks are regular in northern Kenya, a region that might as well be part of Chad as far as Nairobi is concerned. Someone in the Internal Security Ministry is not doing his job.