The top 20 best countries to invest your money in Africa

This is according to the latest Ernst & Young’s Africa Attractiveness Report (2016). Kenya is ranked 4th. Ahead of Tunisia, Mauritius, and Botswana. You just need to spend a few hours in Nairobi, or the other 46 county headquarters, to understand why. While economic inequality remains to be a huge (political) challenge, it’s hard to argue against the structural transformations underway in the Kenyan economy.

Screen Shot 2016-07-26 at 11.41.28 AM.png

Screen Shot 2016-07-26 at 11.36.26 AM

More on this year.

Human Capital and Economic Development in Britain, 1750-1930

B. Zorina Khan writes:

Many argue that the nature of early British industrialization supports the thesis that economic advances depend on specialized scientific training, the acquisition of costly human capital, and the role of elites. This paper examines the contributions of different types of knowledge to British industrialization, by assessing the backgrounds, education and inventive activity of the major contributors to technological advances in Britain during the crucial period between 1750 and 1930. The results indicate that scientists, engineers or technicians were not well-represented among the British great inventors, and their contributions remained unspecialized until very late in the nineteenth century. For developing countries today, the implications are that costly investments in specialized human capital resources might be less important than incentives for creativity, flexibility, and the ability to make incremental adjustments that can transform existing technologies into inventions that are appropriate for prevailing domestic conditions.

…….. The patent records also enable us to examine whether a science background increased productivity at invention. Again, the patterns are consistent with the notion that at least until 1870 a background in science did not add a great deal to inventive productivity. If scientific knowledge gave inventors a marked advantage, it might be expected that they would demonstrate greater creativity at an earlier age than those without such human capital. Inventor scientists were marginally younger than nonscientists, but both classes of inventors were primarily close to middle age by the time they obtained their first invention (and note that this variable tracks inventions rather than patents). Productivity in terms of average patents filed and career length are also similar among all great inventors irrespective of their scientific orientation. Thus, the kind of knowledge and ideas that produced significant technological contributions during British industrialization seem to have been rather general and available to all creative individuals, regardless of their scientific training.

The whole paper is definitely worth reading and is available here.

Philip Tetlock lunches with the FT

As Tyler Cowen would say, the entire piece is self-recommending. Here are a couple of quotes from the exchange. Philip Tetlock is the author of Superforecasting: The Art and Science of Prediction.

Tetlock’s demonstration that strong commitment to theory or ideology makes poor forecasters — and that even best forecasts come to resemble guesswork when they reach more than a few years into the future — raises an unsettling possibility. It suggests that human affairs are mostly random and intractable. Incremental gains in foresight are possible, but there is no deep order to life…..

His work has taught him that everyone takes a heavy ideological endowment from their environment. “Any good political psychologist should have the moral and historical imagination to see how he or she could become almost any ideological creature that has existed, or does exist on the planet. That includes Nazis, Stalinists, Maoists, Isil . . . There but for the grace of God.”

More on Tetlock here.

Is there such a thing as predatory sovereign lending?

The Wall Street Journal has a great story on Mozambique’s stolen hidden debt scandal:

Screen Shot 2016-06-30 at 8.03.37 PM.pngThe government picked Mr. Safa’s company, Privinvest, to supply ships, including patrol and surveillance vessels, and asked its help getting financing. The company disputes the characterization of the ships as military, saying they weren’t outfitted with weapons. Privinvest approached Credit Suisse about a loan for Mozambique, and a committee of senior executives, including then-CEO Gaël de Boissard, approved the deal.

Credit Suisse’s top brass signed off in part because the bank had pioneered a way to lend in developing countries without taking on much risk.

The bank found it could purchase sovereign-debt insurance through the Lloyd’s of London insurance market to hedge as much as 90% of the loans against default. Credit Suisse charged higher interest rates on the debt than its insurance premiums, pocketing the difference mostly risk free.

The insurance policies Credit Suisse used only covered governments. So when Mozambique wanted to borrow the money through state-owned companies instead, the bank came up with a twist: Mozambique would cosign.

FT notes that:

The debt was originally borrowed via a special purpose vehicle for Ematum [tuna fishing company], an arrangement that does not require the same level of disclosure as a sovereign bond issue.

Basically Credit Suisse, the Russian VTB Capital, and their Mozambican accomplices knew exactly what they were doing.

When the money got to Mozambique it mostly went into private pockets. The proposed tuna business the loans were intended to finance went bust (realizing a paltry 2.5% of projected sales). And the security purchases (ostensibly to secure Mozambique’s vast yet-to-be-developed gas fields) proved useless.

Meanwhile…

…….conditions in Mozambique are worsening. Its foreign-currency reserves fell to $1.8 billion in May from $2 billion in January, and it is seeking $180 million in food aid. Intensified fighting has sent more than 10,000 refugees to neighboring Malawi, according to the U.N. High Commission for Refugees.

Credit Suisse is a Swiss financial services company. According to the WSJ Privinvest’s struggling subsidiary Constructions Mécaniques de Normandie built the ships sold to Mozambique. The latter is, of course, based in France. Corruption knows no borders.

Is Brexit good or bad for Africa?

Writing in Foreign Policy, Alex de Waal is certain that Brexit is terrible for African countries, and that “[e]verything from the economy to peacekeeping missions will suffer.”

The damage to British interests is significant, but the losses for [African countries] could be greater still. In campaigning to leave the European Union, Minister for Africa James Duddridge argued that Britain would be able to forge stronger ties with the continent if it were unencumbered by EU inefficiencies in aid and trade. Perhaps if Duddridge had a blank slate on which to construct a new Africa policy, he could do better than Britain’s existing one, which is part bilateral and part multilateral through the EU.farage But no policy is ever built on a blank slate, and surveying the post-Brexit political wreckage, he is now faced with a salvage job that will involve decoupling Britain from numerous EU-led peace and development initiatives and renegotiating dozens of trade deals. Even deftly managed by Duddridge or his successor, the Brexit will leave Britain with a fraction of the influence it currently wields in Africa.

And over at Africa is a Country Grive Chelwa notes that:

The one obvious channel through which Brexit could affect economies in Africa is if it triggers a recession in the UK. A recession might affect trade and investment between the two regions. The Bank of England thinks a recession might very well be on the cards. A study reviewing all studies that have estimated the likely economic impact of Brexit found: “GDP losses for the UK in the range of 10% or more [could not] be ruled out in the long run.”

How much trade takes place between the UK and Africa? Not much, it turns out. Combining data from the UK’s Office for National Statistics (ONS) and the United Nations Conference on Trade and Development (UNCTAD) for 2014, the latest year for which we have comparable data, we calculated that exports from Africa to the UK represent about 5% of Africa’s total exports. Africa is more worried about a slowdown in China, its biggest trading partner by far.

…. The UK doesn’t have the same influence on the continent that it did decades ago. And Brexit will be further proof of that. If the UK sneezes Africa will … well Africa will say “bless you” and move on.

On balance, I agree with Chelwa. It appears that with regard to the UK-Africa relationship, the Brits stand to lose more than Africa as a unit following Brexit. This is for the following reasons:

  1. Lacking the amplifying effects of the EU, UK influence in Africa will be diminished. This is bad for the UK, but not necessarily so for African states. Notice that the UK’s security objectives in Somalia or elsewhere on the Continent have not suddenly changed following the Brexit vote. We should disabuse ourselves of the notion that the UK involvement in these theatres of conflict is out of pure benevolence. It is largely to protect British interests (tourists, MNCs, aid workers, other tied aid, etc). Those interests have not suddenly changed with Brexit. Is a post-Brexit UK better off with a stable Somalia? I think so. Viewed this way, what Brexit has done is not to change British interests in Africa but to increase the UK’s transaction costs in catering to those interests. The Brits may invest less in specific peacekeeping operations, but their self-interest dictates that they will not suddenly close the taps on these investments.
  2. A diminished UK diminishes Europe, which may reduce Europe’s leverage vis-a-vis African countries. This outcome could cut both ways. On the one hand, it may exacerbate the moral hazard problem faced by African leaders by allowing them to play different European powers off each other (why invest in good governance if Europe is always at the ready to help if things go south?) But on the other hand, a weaker Europe may be less willing to bail out African leaders all the time. This might force these leaders to take their jobs seriously, thereby improving the welfare of their citizens. 
  3. It is not clear that decoupling UK aid from the rest of Europe will necessarily lead to the UK cutting its aid budget. In fact, the opposite might prove true. Going its own way may force the UK to put more aid pounds into projects in the region than it currently does under a joint EU aid budget. Again, increased transaction costs may mean the UK spending more money than it currently does in Africa, which is good for African economies. Plus the UK is likely to find itself needing to make up for the lost amplifying effects of the EU with more aid pounds.
  4. A recession in the UK may prove contagious. This would be bad for the world economy, and Africa would not be an exception. That said, I don’t think economic turbulence in Africa would necessarily lead to the conflicts of the early 1990s. With a few glaring exceptions, most African countries would be able to withstand a global recession without collapsing. We saw this during the Great Recession.
  5. The world is learning a lot about democracy by observing the challenges it currently faces in the West. Suddenly, corrosive ethnic politics is not exclusive to poor countries. “Leaders” like Donald J. Trump and Boris Johnson are not things that only happen in Zimbabwe or Nicaragua. These data points will serve to demystify democracy as a system of governance, and refocus global attention on what really makes democracy work — a stable intra-elite consensus coupled with reasonably sufficient responsiveness to the electorate (down with the fetishization of elections!!!) This will be a valuable lesson for Africa and other developing regions of the world. The ongoing sociopolitical troubles in the West are bound to liberate the worldview of leaders and other elites in the Global South, and will empower them to mold their own societies in their own image, instead of trying to turn them into Denmarks. The often-misrepresented “European mystique” has lost its shine. And this is a good thing for the world.

This is not to say that Africa’s economies will be able to weather Brexit without any non-trivial hiccups. South Africa, Nigeria, and Kenya are probably the most exposed (in that order). Other African economies will be exposed to the extent that economic troubles in the UK lead to a global recession (the gold exporters might even benefit…)

And Western security policies and support for missions in Somalia and across the Sahel may face short-term uncertainties. But these experiences will not necessarily be catastrophic (on the security front, America will most likely steady the ship).

In fact, I tend to think that the long-run impact of these experiences will be positive. English speaking African economies will have incentives to diversify their export destinations away from the UK. African countries will have more leverage vis-a-vis the UK and (a fractured) Europe (and the US). And the lessons from the political upheavals in the West will serve to liberate Global South elites to mold their own societies in their own image and in a manner that respects sociopolitical realities in their specific contexts.

Important read for comparativist political scientists

This is from Tom Pepinsky (comparative grad students, read all his stuff):

The most common misconception that I encounter is that political science is divided along a cleavage of quantitative scholars and rational choice theorists versus qualitative or historical scholars. The errors here are two. First, this view lumps together “rational choice theory” with quantitative methodology, which both mistakenly equates theory and methodology and misses that some of the strongest critiques of rationalism in political science come from a quantitative behavioral origin (and vice versa). Second, it misses the extent to which quantitative methods are used in service of historical arguments, and the extent to which rationalist arguments are frequently grounded in qualitative insights. There is probably much more to write on this, but the idea of a discipline characterized by this singular cleavage on this particular axis always makes me cringe. It is probably not even anachronistic, just plain false.

…..quantitative social scientists are the biggest critics of other quantitative social scientists. This is a result of the identification revolution in the social sciences (in economics often termed the “credibility revolution“), which grounds statistical methodology in a theory of causality. The stakes for current quantitative research are extraordinarily high, because the body of data that can be analyzed using quantitative tools is much larger than the set of credible causal inferences that can be drawn from that data. For one recent articulation of how this new identification revolution, see Samii 2016 (pdf, ungated).

The post mainly addresses methodological concerns (about political science) often raised by scholars in the humanities.

Read the whole post here.

Given the cost of gun violence, why doesn’t the US Federal Government just pay gun manufacturers not to sell as many guns to civilians?

The US gun industry is a $49 billion dollar industry that in 2015 resulted in roughly 290,000 direct and indirect jobs. The industry also costs the American society about $229 billion due to fatal and non-fatal violence. This includes $8.6b in direct costs — emergency response, police investigations, prisons, etc (see video below). The total annual revenue of guns and ammunition manufacturers is about $14 billion ($1.5b profit); while gun stores and associated businesses typically record revenues above $3.1 billion ($479m profit).

Screen Shot 2016-06-15 at 12.55.06 AM

$49b amounts to about $154 per capita. The cost, at $229b, is about $720 per capita — more than 4.5 times the economic impact of the gun industry. If these figures are anywhere near the truth then the government should consider becoming an even bigger customer of weapons manufacturers. Or it could simply pay gun manufacturers money so they can limit their annual production of guns.

The EAC: A Model for Boosting Intra-Africa Trade?

The Economist reports:

Since its resurrection in 2000, officials are more often found toasting its success. A regional club of six countries, the EAC is now the most integrated trading bloc on the continent. Its members agreed on a customs union in 2005, and a common market in 2010. The region is richer and more peaceful as a result, argues a new paper* from the International Growth Centre, a research organisation.

Many things boost trade, from growth to international deals. The researchers use some fancy modelling to pick out the effect of the EAC. They find that bilateral trade between member countries was a whopping 213% higher in 2011 than it would otherwise have been. Trade gains from other regional blocs in the continent are smaller: around 110% in the Southern African Development Community (SADC), and 80% in the Common Market for Eastern and Southern Africa (COMESA).

Planned infrastructure links over the next decade should add a positive shine to these figures.

Now if only regional integration had a similarly sanguine implication for democratic consolidation among the member countries of the EAC…

Myth Making as National Building: The Case of the United States of America

This is from Joseph J. Ellis’ Founding Brothers: The Revolutionary Generation:

As [John] Adams remembered it … “all the great critical questions about men and measures from 1774 to 1778” were desperately contested and highly problematic occasions, usually “decided by the vote of a single state, and that vote was often decided by a single individual.” Nothing was clear, inevitable, or even comprehensible to the soldiers in the field at Saratoga or the statesmen in the corridors at Philadelphia: “It was patched and piebald policy then, as it is now, ever was, and ever will be, world without end.” The real drama of the American Revolution, which was perfectly in accord with Adams’ memory as well as with the turbulent conditions of his own soul, was its inherent messiness. This meant recovering the exciting but terrifying sense that all the major players had at the time — namely, that they were making it up as they went along, improvising on the edge of catastrophe.

Of course a real catastrophe would befall the United States more than eight decades after independence in the form of a bloody civil war that killed more than 600,000 (2 percent of the U.S. population at the time).

The book is a fantastic page turner. My impression after reading it is that America was lucky that two of its first three presidents were Virginians who represented a social class that was terribly indebted to British financiers.

On a related note, I am always surprised by how little Americans know about what happened between July 1776 and George Washington’s inauguration as president in April of 1789. A lot about America that seems preordained in hindsight was terribly contingent in the first decade of independence. As a student of legislative development, I have learned a lot about these turbulent and uncertain years from works on the early state legislatures and the Continental Congress. Peverill Squire’s Evolution of American Legislatures (1619-2009) is my favorite book on this subject. Highly recommended.

Five Things You Should Know About the Ongoing Monday Protests in Kenya

Over the last couple of weeks opposition parties in Kenya have staged public protests across the country demanding for personnel changes at the Independent Electoral and Boundaries Commission (IEBC) — Kenya’s electoral management body (EMB). This week’s Monday demonstrations turned violent in some towns and cities, with at least four people reported dead at the hands of anti-riot police.

The organizers of the protests have vowed to keep at it every Monday until the current IEBC commissioners resign. Here are the five things you need to know about the protests:

  1. A plurality of Kenyans have lost faith in the IEBC (see here). Screen Shot 2016-06-07 at 8.07.41 PMIn the run up to the 2013 election, several members of the commission (then known as IIEC) and its secretariat were implicated in graft (known as the chickengate scandal) involving a number of British companies. These individuals’ accomplices were found guilty by UK courts; and court documents explicitly mentioned the Kenyans that were bribed by their UK counterparts. Yet a number of those adversely mentioned in the UK court documents continue to remain in office — including the chairman of the commission, Issack Hassan. It is partially for this reason that a plurality of Kenyans (including politicians on both sides of the political divide) have lost faith in the IEBC.
  2. Opposition politicians, including those in CORD and KANU, want the IEBC reconstituted over suspicions that its current leadership favors incumbent Uhuru Kenyatta and the governing Jubilee Alliance. CORD (in my view, erroneously) maintains that the IEBC was used to rig the 2013 election in favor of President Kenyatta. KANU has most recently accused the same EMB of rigging the Kericho senatorial by-election in favor of the Jubilee candidate. CORD has also argued that its failure to meet the threshold for a popular referendum (dubbed Okoa Kenya) —  whose main thrust was a change in Kenya’s electoral laws — was a result of bias within the IEBC. CORD wants the IEBC reconstituted and the new commission to have proportional representation of parliamentary political parties. Although the constitution lays out the procedure for removing commissioners of an independent entity like IEBC (through Parliament), CORD is wary of this option due to its minority status in the legislature. Initially it pinned its hopes on a popular referendum. But when that failed it resorted to mass action in a bid to strategically influence any eventual institutional reform of the IEBC (in my view this eventuality can partially be blamed on the singular failure of the(Jubilee) leadership of the National Assembly).
  3. The Uhuru Kenyatta Administration is caught between a rock and a hard place. On the one hand, it is hard for the administration to defend an obviously tainted EMB. This would also go against its continued claim that the IEBC is an independent body. But at the same time, the administration needs a reform path that will not embolden the opposition. The thinking within the Jubilee Alliance appears to be that if they give in to CORD on IEBC, what will CORD demand next? The contention that any and all reforms touching on the IEBC should follow constitutionally stipulated channels is partly motivated by this fear. In this regard, if CORD is genuine about surgical reforms specifically targeting the IEBC, it’s leadership should perhaps think of a way to credibly signal to the Kenyatta Administration that their reform agenda is limited in scope. From a purely political standpoint, President Kenyatta has reason to be cautious about the potential to open a whole pandoras box of constitutional reforms.
  4. Police brutality is (still) common in Kenya. Screen Shot 2016-06-07 at 7.27.32 PMOne of the goals of Kenya’s new political dispensation following the adoption of a new constitution in 2010 was police reform (majority of the 1,300 killed in the post-election violence of 2007-8 were shot by police). The institution even changed its name from Police Force to Police Service; and an independent police oversight authority was created (to democratize the institution through civilian oversight). But experience since 2013 has shown that these attempts at reform have not yielded any tangible results. The Police Service is still as corrupt as ever. And has little consideration for constitutional limits to its use of force (see image). Which means that more Kenyans will be killed in the hands of the police if the Monday protests continue.
  5. The 2017 presidential contest will likely be more competitive than most people think. Six months ago I would have predicted a landslide reelection victory for President Uhuru Kenyatta in 2017. Not anymore. President Kenyatta is still the favorite to win (because of incumbency advantage). But the jostling over control of the IEBC and the Supreme Court are telltale signs that the political class is expecting a close contest that will likely be disputed. It says a lot that despite being the incumbent, President Kenyatta’s poll numbers have stubbornly stuck in the low 40s (he can thank mind-blowing corruption and general Public Sector incompetence for that). This means that unless we see a drastic shift in regional alliances, next year’s election will most likely go to a runoff contest between Kenyatta and Odinga — which will be close. The more reason to have credible institutions in the form of a trusted IEBC and a Supreme Court beyond reproach. 

What does this say about overall political stability in Kenya? At this point in time I am a lot  more worried about county-level electoral violence than a 2007-08 style national disaster. That said, there is reason to fear that continued police brutality, especially targeting opposition supporters, may trigger wider civilian violence against presumed Jubilee supporters.

It is a little too early to talk specifics about next year’s presidential election. But what is clear is that Kenyatta’s reelection battle will no longer be a walk in the park.