Picture of the Month

Mugabe, Museveni, and Kagame — seen here witnessing the handover of power in Tanzania — are de facto presidents for life.tzpic

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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.

Kenya: Five Things About Al-Shabaab and the Somalia Question

Early Thursday morning militants from the al-Shabaab terror group stormed Garissa University College in Kenya and killed at least 147 students. The second worst terror attack in Kenya’s history lasted 13 hours and was made excruciatingly horrific by the fact that many of the victims remained in communication with their loved ones until the very last moments. Unbearable images of young students laying dead in their own pools of blood in classrooms will forever be etched in Kenyans’ memories. The attack echoed the September 21, 2013 Westgate Mall terror attack that killed 67 people. After Westgate many Somalia analysts insisted that such daring missions were the kicks of a dying horse, and cited successes by AMISOM and AFRICOM in taking back territory from al-Shabaab and decapitating the organization through drone strikes against it leadership.

Following Garissa, it might be time to reconsider this persistent narrative and overall Somalia policy in the Eastern African region. Here are my thoughts:

Screen Shot 2015-04-03 at 9.51.35 AM1. Regional powers do not want a powerful central government in Mogadishu: Since independence several governments in Somalia have espoused a dream of re-uniting all the Somali lands and peoples in eastern Africa (under “Greater Somalia,” see map). That includes parts of Ethiopia, Kenya, Djibouti, and more recently the breakaway regions of Somaliland and Puntland. A strong central government in Mogadishu would most certainly revive this old irredentist dream, despite the fact that the irredentist dreams of Somalia’s pre-Barre governments and the costly wars with Ethiopia (and proxy wars with Kenya as well thereafter) were the beginning of the end of stability in Somalia. Nairobi and Addis are acutely aware of this and that is part of the reason Kenya has for years maintained a policy of creating an autonomous buffer region in southern Somalia – Jubaland. The problem, however, is that a weak Mogadishu also means diffused coercive capacity and inability to fight off breakaway clans, militias, and terror groups like al-Shabaab.

The situation is complicated by the fact that Ethiopia and Kenya do not see eye to eye on the question of Jubaland. Addis Ababa is worried that a government in Jubaland dominated by the Ogaden clan could potentially empower the Ogaden National Liberation Front (ONLF), a separatist Somali insurgent group it has fought in its southeastern Ogaden Region.

2. The African Union and its regional partners do not have a coherent game plan for Somalia: To a large extent, African governments fighting under AMISOM are merely carrying water for Western governments fighting jihadist elements in Somalia. The West pays and provides material and tactical support; and the West calls the shots. Ethiopia and Kenya have some room to maneuver, but overall policy is driven by AFRICOM and the Europeans. The lack of local ownership means that African troops, especially the Kenyan and Ugandan contingents, are in the fight primarily for the money. Kenyan generals are making money selling charcoal and smuggling sugar (the UN estimates that al-Shabaab gets between US $38-56m annually from taxing the charcoal trade). The Ugandans are making money with private security contracts dished out to firms with close ties to Museveni’s brother. Only the Ethiopians appear to have a clear policy, on top of the general international goal of neutralizing al-Shabaab so that they do not attack Western targets.

What kind of settlement does Kenya (and Ethiopia) want to see in Somalia? (See above). What does the West want? What do Somalis want? Are these goals compatible in the long run?

3. The internationalization of the al-Shabaab menace is a problem: Western assistance in fighting al-Shabaab and stabilizing Somalia is obviously a good thing. But it should never have come at the cost of unnecessary internationalization of the conflict. Al-Shabaab has been able to get extra-Somalia assistance partly because it fashions itself as part of the global jihad against the kafir West and their African allies. Internationalization of the conflict has also allowed it to come up with an ideology that has enabled it to somehow overcome Somalia’s infamous clannish fractionalization (although elements of this still persist within the organization). Localizing the conflict would dent the group’s global appeal while at the same time providing opportunities for local solutions, including a non-military settlement. AMISOM and the West cannot simply bomb the group out of existence.

4. Kenya is the weakest link in the fight against al-Shabaab: Of the three key countries engaged in Somalia (Ethiopia, Kenya, Uganda), Kenya is the least militarized. It is also, perhaps, the least disciplined. According to the UN, Kenyan troops are engaging in illegal activities that are filling the coffers of al-Shabaab militants (charcoal worth at least $250 million was shipped out of Somalia in the last two years). Back home, Nairobi has allowed its Somalia policy to be captured by a section of Somali elites that have other agendas at variance with overall national policy. The Kenya Defense Force (KDF) risks becoming a mere pawn in the clannish struggles that straddle the Kenya-Somalia border. It is high time Nairobi reconsidered its Somalia policy with a view of decoupling it from the sectional fights in Northeastern Province. The first step should be to make the border with Somalia real by fixing customs and border patrol agencies; and by reining in sections of Somali elites who continue to engage in costly fights at the expense of ordinary wananchi. The government should adopt a strict policy of not taking sides in these fights, and strictly enforce this policy at the County level.

5. Kenya will continue to be the weakest link in the fight against al-Shabaab: Of the countries in Somalia Kenya is the only democracy with a government that is nominally accountable to its population and an armed force with a civilian leadership. This means that:

(i) Generals can run rings around State House and its securocrats: Unlike their counterparts in Uganda and Ethiopia, the Kenyan generals do not have incentives to internalize the costs of the war in Somalia. The cost is mostly borne by the civilian leadership. They are therefore likely to suggest policies that primarily benefit the institution of the military, which at times may not be in the best interest of the nation. And the civilian leadership, lacking expertise in military affairs, is likely to defer to the men in uniform. The result is makaa-sukari and other glaring failures.

(ii) Kenyan internal security policies are subject to politicization: With every al-Shabaab attack (so far more than 360 people have been killed) Kenyans have wondered why Ethiopia, which is also in Somalia and has a large Somali population, has remained relatively safe. My guess is that Ethiopia has done better in thwarting attacks because it has a coherent domestic security policy backed by unchecked coercion and surveillance of potential points of al-Shabaab entry among its Somali population.

Now, Kenya should not emulate Ethiopia’s heavy-handed tactics. Instead, focus should be on an honest assessment of how internal security policies in Mandera, Garissa, Wajir, Kwale, Kilifi, Mombasa, Nairobi, and elsewhere are playing into the hands of al-Shabaab. What is the best way to secure the “front-line” counties that border Somalia? What is the role of local leaders in ensuring that local cleavages and conflicts are not exploited by al-Shabaab? How should the security sector (Police and KDF) be reformed to align its goals with the national interest? What is the overarching goal of the KDF in Somalia and how long will it take to achieve that goal? How is the government counteracting domestic radicalization and recruitment of young Kenyan men and women by al-Shabaab?

These questions do not have easy answers. But Kenyans must try. The reflexive use of curfews and emergency laws, and the blunt collective victimization of communities suspected to be al-Shabaab sympathizers will not work.

I do not envy President Uhuru Kenyatta: Withdrawing from Somalia will not secure the homeland. Staying the course will likely not yield desired results given the rot in KDF and the internal politics of northeastern Kenya. Reforming the police and overall security apparatus comes with enormous political costs. A recent shake up of security chiefs and rumors of an impending cabinet reshuffle are signs that Kenyatta has realized the enormity of the insecurity situation in the country (and overall government ineffectiveness due to corruption). But will Kenyans be patient and give him the benefit of the doubt? Will the president be able to channel his laudable nationalist instincts in galvanizing the nation in the face of seemingly insurmountable security threats and ever more corrupt government officials?

Meanwhile 2017 is approaching fast, and if the situation doesn’t change Mr. Kenyatta might not be able to shrug off the title of “Goodluck Jonathan of the East.”

For the sake of Kenyan lives and the Jamuhuri, nakutakia kila la heri Bwana Rais.

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.

How Eastern Africa can avoid the resource curse

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.

Nairobi to Lusaka, Part II

Dar es Salaam is a pleasant town in late June. I had only been there once before, back in 2011 when I stayed for a day and a half to catch the Tazara. I didn’t like it then because of the heat and humidity (humidity is up there with cats – I am allergic – on the list of things I cannot stand). But this time round it was nice, I managed to walk around town marveling at the pillars of concrete and glass that are rising up in every corner of the city. The construction boom puts even Nairobi to shame, enough to make me think that the suggestions that Tanzania may soon eclipse Kenya as the place where all the action is in East Africa are not that far fetched after all (see image and this piece).  Image

My only complaint was that a prime section of the beach front still remains under-utilized, although this might be because of the presidential palace nearby. I hear you can’t drive there at certain times of the day (Stop channeling Mugabe, Bwana Kikwete. Also, let Chadema be). Oh, and I did manage to drive on the Kibaki road. I thought it was a new road, but it is not. Sections of it are actually pretty bad. Apparently, the Tanzanian government is planning an upgrade soon. I also drove past Mwalimu Nyerere’s home. It made me respect the man even more.

I arrived in Dar late on Tuesday night after many hours of travel by bus. On Thursday morning I was scheduled to continue with the second leg of the journey to Lusaka. I was at the bus stop by 5:45 AM, still sleepy. I had stayed up late the previous night, watching the Confederation Cup matches of the day, reading and writing my Saturday column. I fell asleep as soon as I got to my seat.

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Dar’s public housing units. For a moment I thought that the choice of color was meant to discourage applicants. Until I saw the pink public housing headquarters. Some of the units are in really nice parts of town.

The bus left the station promptly at 6:15 AM. Tanzania is huge. From Dar es Salaam to the Tunduma border is about 931 kilometres. The drive to the Zambian border took a total of 16 hours.

As I said in the previous post on this trip, I regretted taking the bus. If you want to travel overland between Dar and Lusaka, take the train. It is a million times more pleasant. There is a restaurant and a bar (that serves Tusker) on the train. There are bathrooms. And you have a bed. Plus the train is just slow enough that you can read and truly appreciate the empty Tanzanian countryside.

But the trip wasn’t all gloomy. The scenery was still enjoyable. Sections of Tanzania are quite hilly, with amazing views of cliffs and rivers and rock formations. At some point past Iringa I saw what seemed to be the biggest tree plantation in the world. For miles and miles all I could see were rows and rows of trees. And when there were no trees there were rows and rows of sisal. Someone is making bank off the land in that part of the country.

Also, western Tanzania is a lesson on how hard it is to achieve economic development in the context of a sparsely populated country. Such situations make it impossible to reach everyone with the grid and water pipes. Either the government has to wait for demographics to work its magic (again, see figure above – and be sure to check out this story on the Africa-driven demographic future of the world) or provide smart incentives to accelerate the process of urbanization.

For those who went to high school in Kenya, journeying by land through Tanzania reminded me of Ken Walibora’s Siku Njema. I felt like I was retracing the steps of Kongowea Mswahili. Some day I would like to go back and spend some time in Morogoro and Iringa. By the way, Siku Njema is by far the best Swahili novel I have ever read (which reminds me that it has been eight years since I read a Swahili novel. Suggestions are welcome, preferably by Tanzanian authors). It is about time someone translated it into English for a wider audience.

We reached Tunduma some minutes past 10 PM. The border crossing to Nakonde on the Zambian side was closed. Some passengers on the bus left to rent out rooms for the night. I decided to tough it out on the bus with the crew and a few other guys. Desperate for something warm to eat, I had chicken soup and plain rice for dinner. The “restaurant” reminded me of the place in Tamale, Ghana where Vanessa and I got food poisoning two months earlier. But I was desperate. I quickly ate my hot soup and rice and hoped for the best.

ImageI crossed the border early in the morning on foot. The bus had to wait in line for inspection and to pay duty for its cargo (It is at this point that I learned that the bus was actually going all the way to Harare in Zimbabwe). I am usually very careful with money changers, but perhaps because of my tiredness and lack of sleep the chaps in Nakonde got me.

If you ever cross to Nakonde on foot wait until you are on the Zambian side to exchange cash at the several legit forex stores that line the streets.

The bus finally got past customs at noon (on Friday). In Nakonde we waited for another two hours for more passengers and cargo.

I took the time to get some food supplies. Lusaka was another 1019 kilometres away. 

By this time I was dying to have a hot shower and be able to sleep in a warm bed. It was cold. Like serious cold. And Lusaka was still another 14 hours away.

I slept lightly through most of the 14 odd hours. In between I chatted with two Kenyan guys that were apparently immigrating to South Africa, with little more than their two bags. They said that this was their second attempt. The previous time they found work in Lusaka and decided to stay for a bit before going back to Nairobi. They were part of the bulk of passengers from Nakonde who were going all the way to Harare. Apparently, this is the route of choice for those who immigrate from eastern and central Africa into South Africa in search of greener pastures.

Before it got dark we saw several overturned trucks on the road. I slept very lightly, always waking up in a panic every time the driver braked or swerved while overtaking a truck just in time to avoid oncoming traffic. My only source of comfort was the fact that the driver was a middle aged man, most likely with a family to take care of and therefore with a modicum of risk aversion.

I arrived in Lusaka at around 4 AM, more than three days and 2871 kilometres since leaving Nairobi.

I said goodbye to my two Kenyan countrymen and rushed out of the bus as soon as I could. On the way to my hotel I couldn’t stop thinking how much I would like to read an ethnography of the crew of the bus companies (and their passengers and cargo) that do the Dar to Harare route.

At Lusaka Hotel that morning I had the best shower I had had in a very long time. And slept well past check out time. I had two months of fieldwork and travel in Zambia to look forward to.

Africa’s newfound love with creditors: Bond bubble in the making?

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.

Nairobi-Lusaka by road, Part I

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The towering Uhuru Heights under construction in Dar es Salaam combines office space with residential apartments

Lusaka must be the only African capital (or major city) that is not a frenzied construction site. No new major roads are being constructed downtown. My quick look only found two new constructions of tall-ish buildings downtown. Lusaka feels really sleepy compared to the three other African capitals/major cities that I have been to in the last three months  – Dar es Salaam, Nairobi, Accra. Dar es Salaam, in particular, is impressive. The city is constructing a rapid bus transportation system with a dedicated lane. Citywide construction of “office space cum residential apartments” mark the landscape promising a rich experience of downtown living for city residents in the near future (I wish Nairobi did more of this….)

The guy who runs the place I am staying at in Lusaka tells me that the only construction going on in town is of shopping malls and expensive residential houses that no one will afford. President Michael Sata, he argues, is bent on turning Zambia into Zimbabwe.

Michael Sata (a.k.a King Cobra) may not go the way of uncle Bob in Zim but he is definitely not the hope for change that Zambians voted for back in 2011. The growth in the economy (6% on average in the last decade, 7.3% last year) is barely trickling down and the ruling PF seems too preoccupied with killing the opposition to care. The old duo of  Scott and Sata seem out of ideas on how to translate the country’s economic growth into wider socio-economic transformation.

Indeed the African Development Bank in its latest report on the Zambian economy noted that “Zambia has yet to achieve significant gains in social and human development. The poverty headcount remains high, with about 60% of the population still living below the poverty line.” The economy is imbalanced, heavily dependent of capital-intensive copper mining that it barely taxes (80% of exports, but paltry a 6% of revenue).

I was first here two years ago for reconnaissance research and have come back for more work. The pace is a nice change from Nairobi. It is also warmer than Nairobi at this time of the year (well at least before nightfall) – just after three years in California and seven months in Nairobi and I have become a little soft on cold weather (Moving to Chicago this fall will be fun!!)

This time round instead of doing air (Nairobi-Dar), rail (Dar-Kapiri) and road (Kapiri-Lusaka), I decided to do it all by road. This turned out to be a terrible idea.

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Sign post on the Tanzanian side of Namanga

Leaving Nairobi was itself an adventure. Despite Vanessa’s well-intentioned “alarm clock” calls to make sure I was up and ready by 5 AM, I missed my bus (I also missed my bus the first time, which is why I flew to Dar es Salaam). However, this time round it was my dad who was dropping me off and because he is a lot more daring that me and my brother, he decided to chase the bus (we were barely five minutes late, thank you very much Nairobi traffic at 5:45 AM). We did not catch my bus (Dar Express), but caught up with its competitor (name withheld for legal reasons, see below) after it had been stopped by the traffic police on Mombasa road for lack of a passenger license (it had a cargo license). Let’s just say that I was mightily impressed by my dad’s driving skills. I wish I were as daring.

So after the police got their cut (which I later found out was Kshs 5000, about US $60) we set off on the journey to Dar. The conductor on the new bus was kind enough to give me a free ride to Namanga (only Tanzanians can do this!!!) with hopes of catching up with Dar Express – in the end we did not, and I had to pay Kshs 2000 for the rest of the journey. The last time I was on the Nairobi-Arusha road was in 2009 when it was all no more than a dirt track that left you caked in thick red-brown dust. Now it is all paved. Nairobi-Namanga took a dizzying three hours. Just over an hour and a half after that we were in Arusha. After Arusha we sped to Moshi where we were caught up in the Prime Minister’s motorcade as he went to the city referral hospital to visit victims of the recent bombing at an opposition rally in Arusha (Arusha is the Chadema (Tanzania’s main opposition party) stronghold; but even in Dar the few people I spoke to about politics did not have nice things to say about the CCM government, especially with regard to rising inequality and corruption – yeah, I just totally Tom-Friedmanned that one).

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The 922 kilometer (573 miles) Nairobi-Dar road

I must say that the Nairobi-Dar road is impressive. Save for about one hour total of patches that were still being done about two hours outside of Moshi, most of the road is paved. Sometimes I forget how massive (and hence empty) Tanzania is. Namanga-Arusha is marked by flat plains, rolling hills and mountains. In the plains cattle rearing appeared to be the economic mainstay (unfortunately, with school age kids herding tens of cattle and sheep – wake up, Tanzania ministry of education). The hilly and mountainous areas mostly have maize and coffee. After the hills there are vast sisal plantations that stretch from horizon to horizon. Arusha and Moshi are the only big towns on the Namanga-Dar route. I particularly like Moshi (or may be I just don’t like touristy, expensive Arusha). It is a town with character, combining a provincial feeling with urban comforts. It also has some nice public monuments.

I rarely see weigh bridges on Kenyan roads (besides the infamous two in Gilgil and on Mombasa road) but in Tanzania they are plenty. And they are not just for the trucks, but also cater for passenger buses. Most of the trucks on the route were connecting Uganda, Rwanda, Burundi and the eastern DRC to the port in Dar. The passengers on the bus consisted of businesspeople (mostly Kenyans and Congolese), random travelers like myself, and tourists (most of who alighted at Arusha). On the Kenyan side, between Nairobi and Namanga we had a total of 5 police stops. On the Tanzanian side between Namanga and Dar there were 6 police stops and about 4-5 weigh bridge stops – the Tanzanians definitely police their roads more keenly. The police on the Tanzanian side were on the lookout for khat/miraa (illegal in Tanzania, and a beloved commodity of truckers) from Kenya and other contraband. True to EAC hospitality, I did not have any problems with immigration at Namanga (unlike in Nakonde, Zambia) or at any of the police check points (officers came on board to check passports). Talking to Tanzanians reminded me of just how bad Kenyan Swahili is – we must sound to Tanzanians like the Congolese sound to us whenever they speak whatever it is they call Swahili (*ducks and runs*).

The bus arrived in Dar es Salaam about 20 hours after leaving Nairobi (Not bad for a US $42 ticket), despite having been made to believe that the trip would take 13 hours. It didn’t help that I ignored Vanessa’s advice to pack food, hoping to buy stuff on the road – the first food stop was six hours into the trip, I had not had breakfast. Exhausted, hungry and mad at myself for taking the hard way to Dar I decided to get a room at the Peacock Hotel. It is not fancy (probably a 4 star?) but it has hot water, the rooms are spacious, and there’s fast internet. They also have a nice restaurant downstairs (Tausi) and are within walking distance to the port and other sites of interest in Dar – a Subway, Indian restaurant, the national library, banks, etc.

I had a day to burn in Dar reading, writing and walking around in readiness for the second leg of my trip to Lusaka, again by road.

Tribe, Nation or Literacy?

Tanzania’s founding president Julius Nyerere famously described Kenya as a vulgar, capitalist “man eat man society” – to which Kenya’s then Attorney General Charles Njonjo retorted that, in contrast, Tanzania was a “man eat nothing society.” At the time Tanzania had embarked on a program of African Socialism – Ujamaa – backed by a language policy that put a lot of emphasis on Kiswahili as the national language. As Ted Miguel has argued inTribe or Nation?(pdf)this was a great strategy in nation building. But was it economically beneficial in the long run?

For now the answer is probably no.

The legacy of Tanzania’s language policy has been that English language instruction only begins to be done seriously in high school. Obviously, four years are simply not enough to master a language, let alone sit a major national examination in that language. The result has been an astonishingly high failure-rate in the national end of high school exams in Tanzania. Earlier this year 60% of high school (Form Four) students failed, prompting jokes like “I’m a rocket scientist in Tz” on this side of the border. In reality even fewer made the cutoff to get a place in institutions of higher learning. In addition, a recent survey done by Twaweza, an education Think Tank, found that 72% of sampled primary school kids and 66% of high school students could not do second grade maths. English reading and comprehension was equally bad.

It goes without mention that the state of Tanzania’s education system has serious implications for human resource development in the country. The impending commodities boom in many parts of the country will certainly not benefit locals if workers have to be imported. Tanzania cannot effectively transform itself into a 21st century economy without a drastic improvement in its education system. Oddly enough, despite its obvious shortage of human capital, Tanzania is the most restrictive state with regard to labor mobility in the East Africa Community (EAC). Dodoma is especially hostile to Kenyan workers that it sees as a threat to local workers (Kenyans and their alleged aggressiveness rudeness have jokes about Tanzanians’ work ethic….. I should add though that Tanzanians tend to be stereotyped unfairly, both at Mang’u and in New Haven I went to school with some very smart and hardworking Tanzanians).

In the final analysis, although Kenya’s post-independence education and language policy left us with a ‘tribe eat tribe’ legacy, it allowed the country’s education system to focus on English language instruction from early on, and a chance to develop a relatively more globally competitive human resource base. Nation building may have taken a hit in the process but I would argue that internal economic ties – the result of man eat man competition – have now made it such that the Kenyan nation-state will only get stronger. The challenge for Tanzania is to ensure that nation building does not limit the development of a globally competitive human resource capacity.

Since the announcement of the high school exam results earlier this year the country (Tanzania) has been debating possible avenues of reform. Better teacher training, more books and equipment and more teachers have been cited as possible remedies. Strategic review of the country’s language policy should also be put on the table.

In my opinion the EAC should adopt a language policy in which our history, social and religious studies and civics are taught in Swahili while everything else is taught in English. This would not be a selling out to a foreign language (with due respect to Ngugi) but an investment in global competitiveness. Many decades down the road, once we have universal literacy in both English and Kiswahili, we can have a full switch to universal Kiswahili language instruction in all subjects.

Is our children learning? (Credit to Bushism)

The Guardian reports:

More than two out of every three pupils who have finished two years of primary school in east Africa fail to pass basic tests in English, Swahili or numeracy, according to a new report, Are our children learning?.

The differences in performance vary both across and within countries:

The report found large differences in average test scores between countries in east Africa. Kenyan pupils perform best in literacy and numeracy. Ugandan children perform worst in the lower school years, but slowly overtake Tanzanian children and outperform them after six years in school.

But it is the within-country differences that are cause for a rethink of education policy in east Africa. Kids in private schools appear to do much better than those in public schools (the gap is most stark in Tanzania, 28 percentage points). The Ugandan school system appears to be the worst, with barely half of EVEN the private school kids passing.

In a finding likely to fuel the debate on public versus private schools, the report said students in private schools perform better than pupils in state schools in all three countries – a difference particularly marked inTanzania, where the pass rate among 10 to 16-year-olds for numeracy and literacy tests was 47% in state schools, compared with 75% in private schools.

“In part, the difference between Tanzania and the other countries is likely to be driven by the much smaller share of pupils attending private schools, even among the non-poor, suggesting they must be particularly selective,” said the report. In Kenya, the pass rate in private schools was 83%, compared with 75% in government schools, while in Uganda the gap was 53% to 36%.

As a product of the Kenyan public school system (and a Wazimba for life), I believe that public schools are the way to go. With some thought and innovation, public schools can be made to work – and in the process serve as the best chance for inter-generational SES mobility. The debate should be about how to improve public schools, as opposed to over the false choice of quantity vs. quality.

A possible model could be something akin to the Kenyan National Schools concept in which select schools across the country get extra resources not only to boost performance but also to act as testing grounds for new learning tools – which can then inform policy to help “Provincial Schools” catch up. Of course this would ineluctably create a multi-tier school system at the beginning, but it is arguably better than a system in which most (if not nearly all, see Uganda and Tanzania) public schools are failing.

It is important to note that in Kenya the best high schools have historically been public. With investment and openness to experimentation and innovation this tradition can be maintained.

H/T @AAA_ipregroup