Illicit trade & insurgency in Mozambique

The Daily Maverick has an excellent piece on how the ongoing insurgency in northern Mozambique may be reshaping the illicit trade industry in the country:

mozambiqueThe most reliable reports of the insurgents developing an illicit income stream are linked to the heroin trade. There is a significant range in street-level heroin prices across East and Southern Africa. The range in prices in northern Mozambique – far greater than found in any other research site – reflects the variance in heroin quality available in Cabo Delgado that we also found during qualitative fieldwork in the region…

There has been a significant recent shift in the rhetoric and style of attacks committed by the Cabo Delgado insurgents. Rather than terrorising communities as in previous months, they are instead attacking state infrastructure and military bases. They have used their increasingly vocal media campaign to declare their intentions to create a caliphate. Analysts we interviewed suggest that part of the insurgents’ aim is to re-establish control over areas historically controlled by Muslim sultanates along the Swahili coast. This historical claim would play into the caliphate narrative and the group’s claim of legitimacy.

If this territorial control were achieved – along the coast from Quissanga to Palma as well as on the key inland transport corridor along the N380 road and the town of Macomia – this could vastly change the dynamics of the insurgency.

Control over key sea and land routes would allow the insurgents to “tax” legal and illicit economies in the region more systematically. While there may already be some protection of heroin trafficking and involvement in the gold and ruby trade, this could expand to include human smuggling, timber trafficking and possibly a share of the illegal wildlife trade.

The insurgents’ access to Mozambique’s illicit trade networks is an ominous development. Taxation of the drug trade and access to point resources like gold will likely boost the insurgents’ staying power and capacity for violence, while also weakening their dependence on local populations. That probably means more civilian deaths.

Ugandan seed distributors aren’t adulterating seeds, it’s probably a problem of handling and storage

This is from a new paper by Alicia Barriga and Nathan Fiala in World Development:

Results from the tests showed very high levels of DNA similarity (above 98%) and good performance in general, but highly variable quality in terms of the ability of the seed to germinate under standard conditions. We do not see differences in average outcomes across the distribution levels, though variation in seed performance does increase further down the supply chain.

ugandaseedsThe results of the tests point to potentially important issues for the quality of seeds. The variation in germination suggests that buying a random bag of seeds in this particular distribution chain can matter a lot for farmer’s production. The high rate of seed similarity suggests that the main concern among policy makers and researchers, that sellers add inert or low-quality material to the seeds, is likely not the case, at least for the maize sector in the districts we study. However, given the remoteness of these districts and the lack of any oversight in these areas, we believe the results are likely a lower bound for the country as a whole.

The supply chain analysis suggests that the quality of seed does not deteriorate along the supply chain. The quality is the same, on average, across all types of suppliers after leaving the breeders. However, we observe high variation of seeds’ performance results on germination, moisture, and vigor, suggesting that results are more consistent with issues of mishandling and poor storage of seeds, possibly related to temperature or quality controls, rather than sellers purposefully adulterating seeds. Variation on these indicators is usually associated with mishandling during transportation and storage.

As the authors note in the paper, African governments and their external donors have put a lot of effort in “certification and labeling so as to reduce the possibility of adulteration by downstream sellers”. Obviously, e-labels and systems of verifying seed authenticity in the fight against adulteration are important. But equally important is an understanding of how the seed distribution system works. And that is one of the major contributions of this paper. Corruption is not always the problem.

Read the whole paper here.

fao_eac

Interestingly, Uganda bests both Kenya and Tanzania on productivity in the cereal sector (I made the graph using FAO data). Despite starting off with relatively lower productivity and having gone through civil conflict beginning in the late 1970s, Uganda has since around 2007 clearly separated itself from both Kenya and Tanzania (and appears to have plateaued). Productivity in Kenya peaked in the early 1980s and has pretty much stagnated since. Tanzania’s figures appear to be trending upwards having collapsed in the early 2000s. There is likely an element of soil quality and general aridity involved in these trends. According to the FAO, Kenya and Tanzania use fertilizer at significantly higher rates than Uganda. For comparison, cereal yield in Vietnam is about 2.7 times higher than in Uganda.

 

Does aid conditionality still work?

(Not that it used to work that well)

Here is a story on Tanzania:

On Wednesday (Nov. 14) the Danish government said it would withhold 65 million crowns ($9.8 million) in aid citing allegations of human rights abuses. The minister of development cooperation Ulla Tornaes announced the decision on Twitter noting “negative developments” and “unacceptable homophobic statements.”

The day before, the World Bank suspended a $300 million educational loan following a government policy banning pregnant girls from going to school. That ban has been roundly criticized by the development community.

Tanzania most likely anticipated these specific reactions from the donor community.

netodaAnd now news reports indicate the World Bank is walking back its suspension of the $300 concessional loan. According to the Tanzanian government, the Bank’s projects in Tanzania run to the tune of $5.2b. At some point the Bank’s board’s commitment to human rights and “good governance” runs against the cold calculus of having to signal effort by the amount of cash pushed out the door each year. Also, the net per capita overseas development assistance (ODA) to African states has been in decline over the last five years (see graph).*

For perspective, Tanzania’s budget for 2018/19 fiscal year is $14b. Which means that the total rescinded aid (if the donors keep their word) currently stands at 2.2% of government expenditure. If you factor in the “implementation surpluses” that typically arise due to suboptimal absorptive capacity, it is a wash. All to say that it’s not clear that these cuts (if the donors hold the line beyond the current news cycle) will inflict maximum pain.

How much aid goes into the government’s total budget?

Despite donors not meeting their commitments last financial year, the government expects to raise Tsh2,676.6 billion ($1.1 billion) from development partners which is equivalent to eight per cent of the proposed budget total funding.

In other words, the Tanzanian Treasury (and politicians) can absorb the hit on the country’s reputation emerging from policies and practices like this, this, and this without devolving into a fiscal meltdown.

*Population data from the World Bank. Aid data from Roodman.

A Tentative (Mixed) Public Health Victory: The Slow Retrenchment of HIV-AIDS

This is from the Economist, on the state of the fight against HIV-AIDS.

The next UN target is that, by 2020, 90% of those infected should have been diagnosed and know their status, 90% of those so diagnosed should be on ARVs, and 90% of those on ARVs should have suppressed viral loads. That is ambitious, but history suggests those in the field will rise to the challenge.

Screen Shot 2016-06-06 at 9.07.02 AM

The blue line is testament to George W. Bush’s No. 1 foreign policy success: PEPFAR.

But we should count our chickens just yet. The trends in the graph above are not uniform across the globe. As I noted in a previous post, there is quite a bit of heterogeneity both across and within countries. For example, in East Africa, Uganda is lagging Kenya and Tanzania in the quest to tame the virus (see below).

On a different note, this is yet another data point to suggest that Yoweri Museveni has hit the inflection point, and from now on all his machinations to stay in power will wipe out the achievements of his first 20 years in power.

Uganda chooses Tanzania over Kenya in pipeline deal

The Business Daily reports:

Uganda will take its oil to the market through Tanzania’s Tanga port, leaving Kenya to build its own pipeline to Lamu, if the positions taken at the just-ended talks in Kampala are maintained.

It turns out that Kenyan negotiators showed up without having done their homework. For example:

….. it has also emerged that the Kenyan officials participating in the Kampala talks may not have had all their facts right as they tried to address the concerns raised by Uganda over the northern route for the pipeline.

This is odd, given Amb. Amina Mohamed’s chops. Or should we be asking questions of the energy ministry?

Screen Shot 2016-04-16 at 5.04.17 PMUganda’s decision should be treated as new information on the capacity of the Kenyan state to execute large scale infrastructure projects. Kenya really wanted this deal, and the fact that the negotiators could not seal the deal with Uganda suggests that there is no there there as far as Nairobi’s capacity to execute on LAPSSET is concerned. This will undoubtedly impact the Kenyatta administration’s ability to originate new projects related to the $25b LAPSSET development plan.

The economics of the choice of pipeline appeared to not have mattered:

A joint pipeline between Kenya and Uganda would have had an initial throughput of 300,000 barrels per day (200,000 barrels for Uganda and 100,000 barrels for Kenya). This could have earned the pipeline companies $1.66 billion a year, which would be shared between the countries according to throughput.

…… If the two countries go for a standalone pipeline, Uganda will lose $300 million every year due to an increase of $4.07 in tariff per barrel, and Kenya will lose $250 million per year due to the increased tariff of $6.96 per barrel.

All else equal, this is probably a net positive development for the future of the East African Community (EAC). It is obviously a big financial and political loss for Kenya (and for that matter, Uganda) but it will dampen the idea of a two-speed EAC — with Kenya, Uganda, and Rwanda in the fast lane and Tanzania and Burundi in the slow lane.

 

An East African Geopolitical Dilemma: Which pipeline route makes most sense for Uganda?

Bloomberg reports:

Screen Shot 2016-03-25 at 9.34.21 AMKenya is competing with Tanzania to build the pipeline from oilfields in Hoima, western Uganda. It would either traverse northern Kenya’s desert to a proposed port at Lamu, near the border with Somalia, or south past Lake Victoria to Tanga on Tanzania’s coast. A third option would be through the southern Kenyan town of Nakuru.

Tanzanian President John Magufuli said earlier this month he’d agreed with Museveni to route the conduit via his country at a cost of about $4 billion, with funding from Total SA. The Kenyan option favored by Tullow, which has oil discoveries in Uganda and Kenya, may cost $5 billion, according to an estimate by Nagoya, Japan-based Toyota Tsusho Corp.

Uganda is in a rush to get its oil to market. It also wants to make sure that it does not tie its hands in an obsolescing bargain with Kenya. Being landlocked, the country already depends a great deal on Kenya as an overland route for its imports and exports. The pipeline would add to Nairobi’s bargaining power vis-a-vis Kampala.

In an open letter to President Yoweri Museveni, Angelo Izama, a Ugandan journalist (and a friend of yours truly) articulates these concerns and concludes that it is better for Uganda to build the pipeline through Tanzania in order to minimize its political risk exposure:

It is not rocket science that routing both commercial traffic and oil through Kenya would give Nairobi near total influence on economic matters and would, added to Kenya’s already considerable market penetration in Uganda, leave little wiggle-room for unforeseen and some predictable hazards. The Ugandan domestic commercial and industrial community as well as consumers remember well how helpless they were when disruptions followed the Kenyan election of 2007 (even when some of us had urged the government earlier to restock fuel in anticipation of political violence). Many also live with the challenges of a single port to our import-addicted economy and the cost to family fortunes whenever Nairobi pulls bureaucratic red tape. Obviously being landlocked is not a “non-issue” as you framed it in Kyankwanzi. It needs to be placed in a detailed context. I have some reservations over your optimistic take on political and market integration, and that said, clearly having one member, in this case Kenya, within this greater EAC community with more power and influence than the rest is not an advantage to the growth of the community and may in fact prove rather dangerous. This as I recall has been the common fear cited in our neighbourhood about Uganda’s aggressive military spending (to which the Kenyan government responded with its own expenditure in the decade ending 2018).

The official reason given by Uganda for considering the Tanzania option (see map) is that construction of the Kenyan pipeline would be delayed (due to corruption, expensive land [Kenyans and land!], security threats from al-Shabaab, and the fact that the Lamu Port is yet to be completed).

All these are reasonable concerns.

Plus, it would have been foolish for Uganda not to strengthen its bargaining position by CREDIBLY demonstrating that it is considering BOTH options.

But Uganda must also know that whatever the outcome, this is an obsolescing bargain. Once the pipeline is constructed, it will be at the mercy of the host country government.

It is for this reason that it should seriously consider the kinds of future governments that might be in office in Nairobi and Dodoma/Dar es Salaam.

To this end Ugandan policymakers need to ask themselves the question: Would you rather deal with a government that partially answers to private sector interests and operates in a context of weak parties; or do you want to be at the mercy of a party-state in which some politically-motivated party stalwarts can actually influence official policy?

Understood this way, Uganda’s concern should be about what happens after the deal has been sealed; rather than the operational concerns that have thus far been raised by Kampala.

Notice that Kenya has been able to protect its existing oil pipeline well enough. Rioters may have uprooted the railway in 2007, but that was because they felt that Museveni was supporting their political opponent (Museveni could be more discreet in the future). Also, it is a lot harder to uproot a pipeline buried in the ground. The construction delays due to land issues can also be solved (and in Kenyan fashion, at whatever cost) — notice how fast Kenya is building the new standard gauge (SGR) railway line from Mombasa to Nairobi despite the well documented shenanigans around land compensation (More on this in a World Bank report I co-authored in my grad school days here).

Perhaps more importantly, the Kenyan option is attractive because Kenya also has oil, and will have to protect the pipeline anyway. This scenario also guarantees a private sector overlap between the two countries — in the form of Tullow or whoever buys its stake — that will be in a position to iron out any future misunderstandings.

Tanzania is also an attractive option. The pipeline will be $1 billion cheaper. Because it passes through largely uninhabited land, construction will be speedy. And the port at Tanga is a lot further from the Somalia border than Lamu, and should be easier to protect.

All this to say that the operational concerns raised by Kampala are a mere bargaining tool. These issues can be ironed out regardless of the host country. The big question is what happens AFTER the pipeline is constructed.

And here, I don’t see why Tanzania is necessarily a slam dunk.

The history of the EAC (see here for example) tells us that Kenya tends to subject its foreign policy to concentrated private interests. Tanzania on the other hand has a record of having a principled an ideologically driven (and sometimes nationalist) foreign policy with significant input from well-placed party officials. Put differently, the calculation of political risk in Kenya involves fewer structural veto players than in Tanzania. Ceteris paribus, it seems that it would be cheaper to manage the long-run political risk in Kenya than in Tanzania.

That said, the Tanzania option makes a lot of sense in a zero sum game. As Angelo puts it:

I have some reservations over your [Museveni’s] optimistic take on political and market integration, and that said, clearly having one member, in this case Kenya, within this greater EAC community with more power and influence than the rest is not an advantage to the growth of the community and may in fact prove rather dangerous.

But even this consideration only makes sense in the short run. Assuming all goes well for Tanzania, in the long run the country’s economy is on course to catch up to Kenya’s. Dodoma will then have sufficient political and economic muscle to push around land-locked Uganda if it ever so wishes.

To reiterate, the simple question Museveni should ask himself is: who would you rather negotiate with once the pipeline is built?

I don’t envy the Ugandan negotiators. And they have not helped themselves by publicly stating their eagerness to get their oil to market ASAP.

Tanzania suspends construction of $10b Bagamoyo port

An agreement for the initial development of the Bagamoyo Port Project was signed in March 2013 during the visit of the Chinese President Xi Jinping as part of the Tsh1.28 trillion infrastructure package deals. The agreement specified that $500 million would be designated for port financing for the year of 2013 to allow the project to start.

Tanzania and Kenya are locked in a competition for the title of gateway to East and Central Africa, and so far Kenya is winning. Transportation costs on the southern corridor are almost 1.5 times those on Kenya’s northern corridor. Bagamoyo was supposed to take the fight to Mombasa (and Lamu). Now Dodoma will focus on upgrading the ports in Dar and Mtwara (and Tanga).

The cancellation of the project is a reasonable policy move. The cost would’ve severely stressed Tanzania’s fiscal position; and the 20m container capacity was a little too ambitious, to say the least.

Also, this development probably increases the probability that Uganda’s oil pipeline to the coast will be routed through Kenya (see here and here).