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 Which means that the total rescinded aid (if the donors keep their word) currently stands at 2.2% of government expenditure.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.

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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).

Do host governments necessarily “do development” better than foreign donors?

A common complaint you hear against donor-driven development projects is that they are typically at variance with local priorities; and make no attempts to work along the grain, or build upon existing systems. It turns out that governments in developing countries aren’t any different.

Take the example of the slum upgrading project in the infamous Kibera slum in Nairobi:

A keen look at the Open Street Map for Kibera and Mathare Valley before the NYS initiative started reveals the existence of services such as education, health, water and sanitation points. In Korogocho, Mukuru, Mathare and Kibera self help groups had emerged even before NYS Initiative start to earn daily income from activities such as urban farming, garbage collection and water delivery services. It is a fact that most toilets are not connected to the main sewer and private clinics are either not registered or managed by quacks, while illegal power connections abound.

The NYS Initiative would have scored big by establishing connections with already existing services providers in poor neighbourhoods by either improving their capacity to offer quality and affordable services to the urban poor or by trying to create an enabling environment for slum entrepreneurs to be part of formal and legal business entities. It is a mistake to assume that  there are no service providers within poor neighborhoods. Poverty and lack of basic services is an urban reality which has motivated the establishment of civil society groups to initiate health, education and income generating activities for women and youths as a supplement to government efforts in meeting its obligations. No government in the world can be able to solve the complex community problems of the poor by itself.

And there is an interesting twist to this story…

Experience from Dar es Salaam in Tanzania and the Urban Poverty and Slum Upgrading Project funded by the World Bank might be instructive. The project has some similarities with the NYS project in terms of targeting poor neighborhoods but was able to achieve more success because it worked more closely with local communities and partnered with Dar es Salaam Municipal Council officials from conception to implementation and monitoring stages, a situation which is totally lacking with the National Youth Service projects. The NYS Initiative seems to be a duplication and competition with the mandate of mandate of Nairobi City County.

I do not know about the veracity of the claims about the Dar slum (and I think the NYS budget is fully domestic — after the initial Chinese boost) but right now it’s hard not to feel like Tanzanians are doing everything right; while Kenyans are perennially running around in circles. The Mara Derby is on.

Read the whole thing here.

Kenya is at peak Tanzania envy

There’s a veritable reason President John Pombe Magufuli is a Tanzanian, and not a Kenyan. It’s the same reason Chief Justice Willy Mutunga is a product of the University of Dar es Salaam, and not the University of Nairobi. President Magufuli embodies the immutable character forged into the Tanzanian identity by President Julius Kambarage Nyerere, the philosopher-king. It’s a national character of service and selflessness that made Tanzania the anchor of the African liberation movement — the Mecca of all black freedom fighters.

It’s a mchicha [sukumawiki] culture of simplicity that eschews public gluttony, impunity, and vileness. That’s why #WhatWouldMagufuliDo has become a household hashtag. Not since President Nyerere have we seen the likes of Mr Magufuli in Africa. There’s a famous quote, attributed variously to Alexis de Tocqueville or Joseph de Maistre, which speaks of the character of a nation, a people. It says that “In a democracy, people elect the government they deserve.” The keys to the nugget are “democracy” and “elect.” In other words, it speaks of the free expression of the will of the people through an open plebiscite. In Tanzania, the people decided to “elect” Mr Magufuli over the opposition candidate, former PM Edward Lowassa. Even before the election, Mr Magufuli had distinguished himself as the hardest working member of the Kikwete government. Mr Lowassa was wildly popular, but Mr Magufuli beat him hands down. The people spoke.

…… In contrast, faced with a stark choice in Kenya in 2013, my compatriots were said to prefer Jubilee’s Uhuru Kenyatta and William Ruto over CORD’s Raila Odinga and Kalonzo Musyoka. The former faced charges for crimes against humanity at the International Criminal Court. I was one among many who placed obstacles in Mr Kenyatta’s election. I argued that electing an ICC indictee wasn’t in the national interest. But voters were polarised along ethnic blocks and failed to see my logic. Today — three years after the election — Kenyans are more depressed than ever, and every new scandal sinks the country into a deeper funk. Most Kenyans today wish Mr Magufuli was a Kenyan. I hate to say I’ve no sympathy.

That’s SUNY Buffalo law professor Makau Mutua writing in the Standard.

This is among a long line of Kenya-Tanzania comparisons that often serve to highlight the relative moral/ethical deficiencies of the former. Kenyans are corrupt and boorish; Tanzanians are polite and virtuous. Kenyans are rabid tribalists; Tanzanians have a strong national identity crafted around Kiswahili as a national language and the great Mwalimu Julius Nyerere’s vision for the Muungano (full disclosure, like Mutua, I am also intellectually enamored by the Dar es Salaam School).

Like all sweeping narratives there is some truth to these comparisons. And bucket loads of unsubstantiated hype. For example, under both Mkapa and Kikwete Tanzania had its share of mega corruption scandals, not unlike what happens north of the Kilimanjaro. Kenya ranks 145/175 in Transparency International’s perception of corruption rankings. Tanzania is at 119/175, still experiencing widespread corruption. The same slight differences are depicted in Afrobarometer survey results (See above. Tanzania is on the left. Question asks for respondents’ perceived share of government officials involved in corruption).

Also, the income of the average Kenyan is almost 1.5 times that of her Tanzanian counterpart. The infant mortality rates (per 1,000 live births) are 37 and 51 in Kenya and Tanzania, respectively.

Mwalimu once quipped that Kenya is a dog-eat-dog society. To which Kenya’s then Attorney General Charles Njonjo replied that Tanzania is a man-eat-nothing society.

Tanzania’s economy may yet outpace Kenya’s in the near future on account of the former’s solid foundation of nationhood. But for now I think it is fair to say that Kenya’s faux “African Socialism” beat Tanzania’s Ujamaa in delivering the goods, the morality of it all notwithstanding.tanzania

Oh, and what about the tired stereotyping of Kenyans as being more hardworking than Tanzanians? Well, according to Pew survey findings a bigger proportion of Tanzanians (than Kenyans) believe that the best way to get ahead is through hard work.

So there is that.

 

Why isn’t the East African Community doing more on Burundi?

The situation in Burundi is deteriorating, fast.

Armed-forces-in-Burundi-340x230There are strong signs of ethnic violence. More than 300 people have been killed since President Pierre Nkurunziza successfully violated term limits to stay in office for a third term early this year. The ensuing violence has forced over 220,000 to flee the country, while scores remain displaced internally. Over the last week alone more than 80 people have been murdered in what is increasingly looking like a civil war rather than mere civil unrest met with heavy-handed repression. The African union has used the word “genocide” in reference to the Burundian situation.

For a background on the current Burundian crisis see here, here, here and here.

So given the clear evidence that things are falling apart in Burundi, why isn’t the East African Community (EAC) doing more to de-escalate the situation?

The simple answer is intra-EAC politics (which serve to accentuate the body’s resource constraints).

The EAC is a five-member (Burundi, Kenya, Tanzania, Rwanda and Uganda) regional economic community (REC) that is arguably the most differentiated REC in Africa. Based in Arusha, Tanzania, it is a relatively robust institution replete with executive, legislative and judicial arms.

Like is the case for most African RECs, the EAC member states conceded precious little sovereignty to Arusha. For example, the  EAC treaty does not directly empower the REC to intervene in a member country even in cases of gross violations of human rights (like is currently happening in Burundi). So far regional cooperation within the EAC has mainly focused on economic issues that do not pose substantial threats to sovereignty. It is for this reason that the EAC has avoided any kind of direct intervention in Burundi to end what is a singularly political crisis — both within Burundi and at the regional level.

That said, Article 123 of the EAC treaty provides a loophole for intervention.

The Article stipulates that the purpose of political cooperation among EAC member states is to, among other things: (i) strengthen the security of the Community and its Partner States in all ways; and (ii) preserve peace and strengthen international security among the Partner States and within the Community. In my view these clauses mandate the EAC to protect both the internal security of Burundi as well as intra-EAC security.

It is important to note that so far the norm has been to treat vagueness in African REC treaties as a call to inaction. But vagueness also provides willing interveners with a fair amount of latitude over interpretation. Furthermore, since 2000 the trend within African RECs has been to dilute the infamous OAU non-intervention clauses (see the AU treaty, for example) especially with regard to security matters.

It is not hard to see how the conflict in Burundi poses a clear and present danger to both Burundi’s internal security as well as peace and security within the EAC.

We know from history that an all out civil war in Burundi would threaten the security of the region. Burundi’s ethnic make up roughly mirrors that of Rwanda. Ethnic conflict in Burundi would inevitably elicit an intervention from Rwanda, thereby regionalizing the conflict (with an almost guaranteed knock on effect in eastern DRC). In addition, even though Kagame may not be a fan of Nkurunziza, he lacks the moral authority to criticize him given recent moves to scrap term limits in Rwanda.

If Rwanda (overtly) intervenes in Burundi, it is not clear which side Tanzania — a critical player — would take (especially because of the implications for the stability of eastern DRC). Kigali and Dodoma do not always see eye to eye. In addition, the new Tanzanian president, John Magufuli, is not particularly close to his Kenyan counterpart on account of his closeness to Kenyan opposition leader Raila Odinga. This may limit the possibility of collective action on Burundi by the EAC’s two leading powers.

And then there is Uganda. President Yoweri Museveni is currently the designated mediator in the Burundian negotiation process. But he is currently preoccupied in his bid to win an nth term in office (who’s counting?) His legitimacy as a mediator is seriously in question on account of his political record back home. Recall that the proximate cause of the current crisis in Burundi was Nkurunziza’s decision to violate term limits. Museveni scrapped term limits in 2005 and has systematically squeezed the Ugandan opposition into submission through heavy handed tactics that are direct violations of human rights.

Sadly for Burundians, the current state of inter-state relations within the EAC is strongly biased against any robust intervention to stop the violence that is increasingly becoming routine. Nkurunziza knows this, and will likely try to make an end run on his perceived political opponents before the wider international community begins to pay closer attention.

Lastly, the other possible interveners — the  UN and the EU — are also not likely to intervene in Burundi any time soon, despite the country’s heavy dependence on foreign aid. Europe is hobbled by the ongoing refugee crisis and the war on ISIS. As for the UN, it increasingly launders its interventions through region or sub-regional IOs (see for example AMISOM in Somalia, under the AU). This kind of strategy requires a willing regional partner, something that is lacking in the case of the EAC (or the AU for that matter).

In the next few weeks there will probably be attempts at mediation and calls for a ceasefire. But my hunch is that things are likely to get much worse in Burundi in the short term.

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.

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.

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