On North Korea’s Lucrative Relationship With African States

A number of African countries have close ties to North Korea. And it is for the very same reasons that these states have (or had) ties with Cuba, China, and USSR/Russia:

Namibian officials describe a different North Korea — a longtime ally, a partner in development and an affordable contractor. Since the 1960s, when North Korea began providing support for African nations during their independence struggles with European colonial powers, the regime has fostered political ties on the continent that have turned into commercial relationships.

Recall that it is China that was willing to come to the aid of landlocked Zambia after apartheid South Africa and apartheid-lite Southern Rhodesia threatened the country’s trade links on account of its support for nationalists from both countries. The USSR and Cuba were also vital allies of African nationalist liberation movements at a time when the West was mired in doublespeak over decolonization and racial equality on the Continent. Cuba, in particular, committed blood and treasure in the liberation of Angola and Southwest Africa (Namibia).

Nelson Mandela vowed never to forget friends that aided the ANC against apartheid:

All to say that China, Russia, Cuba, and North Korea are not merely using African states. It has always been a game played on the basis of mutual interests, with the distribution of benefits dictated by the prevailing balance of bargaining power.

Variagated Africa: Trends in Economic Performance in Two Charts

This is from the IMF’s Monique Newiak:

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In summary:

Non-commodity exporters, around half of the countries in the region, continue to perform well with growth levels at 4 percent or more. Those countries benefit from lower oil import prices, improvements in their business environments, and strong infrastructure investment. Countries such as Côte d’Ivoire, Ethiopia, Senegal, and Tanzania are expected to continue to grow at more than 6 percent for the next couple of years.

Most commodity exporters, however, are under severe economic strain. This is particularly the case for oil exporters like Angola, Nigeria, and five of the six countries from the Central African Economic and Monetary Union, whose near-term prospects have worsened significantly in recent months despite the modest uptick in oil prices. In these countries, repercussions from the initial shock are now spreading beyond the oil-related sectors to the entire economy, and the slowdown risks becoming deeply entrenched.

It should be obvious, but it bears repeating that there is quite a bit of variation in economic performance across the 55 states on this vast continent.

My personal Africa growth index consists of Senegal, Cote d’Ivoire, Nigeria, Ghana, Gabon, Cameroon, Ethiopia, Kenya, Zambia, Angola, and South Africa. And despite ongoing turbulence in a number of the key economies in this basket, I am confident that the turbulence will not completely erase the gains of the last two decades.

 

How to avoid the resource curse, or how Norway spends its $882 billion global fund

This is from the Economist:

This week the “Pension Fund Global” was worth Nkr7.3 trillion ($882 billion), more than double national GDP. No sovereign-wealth fund is bigger (see chart). It owns over 2% of all listed shares in Europe and over 1% globally. Its largest holdings are in Alphabet, Apple, Microsoft and Nestlé, among 9,000-odd firms in 78 countries.

In designing the fund, Norway got a lot right. Its independence is not constitutionally guaranteed, but it is protected as a separate unit within the central bank, overseen by the finance ministry and monitored by parliament. It is run frugally and transparently; every investment it makes is detailed online.

Other funds might copy those structures, but would struggle to mimic the Nordic values that underpin them. Yngve Slyngstad, its boss, says growth came “faster than anyone had envisaged”, and that a culture of political trust made it uncontroversial to save as much as possible. A budgetary rule stops the government from drawing down more than the fund’s expected annual returns (set at 4% a year). The capital, in theory, is never touched. Martin Skancke, who used to oversee the fund’s operations from the finance ministry, attributes the trust the institution enjoys to relatively high levels of equality and cultural homogeneity. It also helps that many rural areas recall poverty just two generations ago.

Consider this your regular reminder that the “resource curse” is not a universal phenomenon. See also Botswana, the United States, Chile, Canada, and Australia.

More on this here.

Several African public figures (and associates) mentioned in the Panama Papers

The Guardian has an excellent summary of what you need to know about the Panama Papers, the data leak of the century from the Panama-based law firm Mossack Fonseca.The firms specializes, among other things, in incorporating companies in offshore jurisdictions that guarantee secrecy of ownership.

Here is a map of the companies and clients mentioned in the leaked documents (source). Apparently, the entire haul (2.6 terabytes of data) has information on 214,000 shell companies spanning the period between 1970 to 2016.

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The leaked documents show links to 72 current or former heads of state and government. So far the highest-ranking public official most likely to resign as a result  of the leak is the Prime Minister of Iceland, Sigmundur Gunnlaugsson (see story here and here)

For a list of African public officials mentioned in the leaked documents see here. And I am sure we are going to hear a lot about all these rich people in developing countries.Screen Shot 2016-04-03 at 9.18.42 PM

Closer to home, the Daily Nation reports that Kenya’s Deputy Chief Justice, Kalpana Rawal, “has been linked to a string of shell companies registered in a notorious Caribbean tax haven popular with tax dodgers, dictators and drug dealers.” Justice Rawal has been dodging retirement for a while. May be after the latest revelations might find a reason to call it quits.

The ICIJ website has neat figures summarizing some of the findings from the massive data haul. Also, here is a Bloomberg story on the tax haven that is the United States. 

Some Africanist inside baseball

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Falling Oil Prices Weighing Down Angolan Economy

According to the IMF:

kwanzaThe oil price shock is adversely impacting the economy. Angola’s oil basket is projected to average US$53 per bbl in 2015, from slightly over US$100 per bbl in 2014, leading to large declines in fiscal revenue and exports. While oil production has recovered following the completion of maintenance work, non-oil GDP growth is expected to decelerate to 2.1 percent in 2015. The industrial, construction and services sectors are adjusting to the decline in private consumption and public investment and lingering difficulties to obtain foreign currency. Inflation is projected to reach close to 14 percent by end-2015, exceeding the National Bank of Angola (BNA)’s 7-9 percent objective. The 2015 budget will allow the central government deficit to fall to 3.5 percent of GDP, compared to 6.4 percent last year. Public debt, however, is projected to increase significantly to 57.4 percent of GDP, of which 14.7 percent of GDP corresponds to the state-owned oil company Sonangol, by end-2015. The external current account deficit is expected to reach 7.6 percent of GDP in 2015; and international reserves to drop to US$22.3 billion (about 7 months of 2016 imports) by end-2015. Meanwhile, a wide spread emerged between the parallel and primary market exchange rates, pointing to an imbalance in the foreign exchange market.

The economic situation in 2016 is likely to remain challenging as international oil prices are not expected to recover and risks are on the downside. Growth is projected to remain stable at 3.5 percent in 2016, with the oil sector growing by about 4 percent. The non-oil sector is expected to show a small improvement, growing by 3.4 percent year-on-year, driven mainly by a stronger recovery in agriculture. Inflation is projected to slow to 13 percent at end-2016, as the effect of the recent monetary tightening is expected to be felt more clearly in the second half of 2016.

More on this here.

Sam Pa, middleman in many Sino-African business deals, detained in China

The FT reports: 

The future of a secretive Hong Kong-based business network at the heart of China’s advance into Africa has been thrown into doubt after reports that its frontman, a jet-setting tycoon with seven names and ties to the intelligence services, has been caught up in a Communist party investigation.

Mr Pa’s detention came a day after Chinese state media announced that Su Shulin, the governor of Fujian Province and a former chairman of state-owned oil group Sinopec, had been placed under investigation for “suspected serious disciplinary offences” by the ruling party’s anti-graft body.

Mr. Pa was the main focus of a May 2015 US military report on predatory investments in the Continent’s extractive sector. It will be interesting to see if Pa’s arrest has any tangible effect on Chinese dealings with the handful of economically opaque dictatorial regimes on the Continent (esp Angola).

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.

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.

Africa’s Billionaires in 2014

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.

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Source: Forbes

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 also this FT story on the impact of currency movements on the wealth of Nigeria’s super rich. Forbes also has a great profile of Aliko Dangote, Africa’s richest man.