Tag Archives: Infrastructure

Africa-China Loans Facts

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This is from a CGD paper by Scott Morris, Brad Parks, and Alysha Gardner:

The World Bank’s portfolio is more concessional than China’s portfolio in every region of the world, and sometimes dramatically so. The overall concessionality of China’s portfolio demonstrates less variation from region-to-region, hovering between 15%-22% in all regions except Europe and Latin America. By contrast, the overall concessionality of the World Bank’s portfolio varies widely — from a low of 15% in Latin America to a high of 60% in Sub-Saharan Africa (which is also the region where Chinese lending volumes are highest). The differences between China and the World Bank are most stark in Sub-Saharan Africa. Whereas the overall concessionality of the World Bank’s portfolio in Sub-Saharan Africa is nearly 60%, China’s portfolio concessionality in the same region is only 22.5% All three measures of lending terms contribute to these differences in portfolio concessionality rates: China consistently has higher interest rates, shorter maturity lengths, and shorter grace periodsconcessionality

Notice that China is neck and neck with the World Bank across Africa, unlike in other regions where Bank lending dominates. What proportion of Chinese lending in Africa are concessional loans?

Whereas the overall concessionality of the World Bank’s portfolio in Sub-Saharan Africa is nearly 60%, China’s portfolio concessionality in the same region is only 22.5% .

Recall that, overall, China is the single largest creditor to developing countries:china creditor

What we should make of African states’ indebtedness to China? A lot of people have opined that China is engaging in debt diplomacy — intentionally trapping African countries with high interest non-concessional loans, after which it will demand all manner of concessions from them (perhaps UN votes, or other forms of assistance in aid of Beijing’s geo-strategic objectives). I have two thoughts on this.

First, the Chinese debt bonanza seen on the Continent over the last two decades was driven, in part, by local demand for infrastructure and other visible and attributable forms of “development.” And yes, intra-elite distributive politics and over-pricing was also involved. And Chinese firms, which often competed against each other, played along, too — perhaps because of the reasons Yuen Yueng Ang describes in her latest book (highly recommended). With this in mind, it is not entirely true to claim that Beijing pushed loans on African states. While it is true that some of the projects were driven more by the quest for kickbacks than for economic reasons, the fact is that individual country dynamics drove the demand for loans and projects. Some of those fit into China’s global geopolitical ambitions (like the Belt and Road Initiative). Others did not. 

Second, let’s think through the debt diplomacy game. Is the idea that China would ruin dozens of African states’ fiscal positions so much so that they would turn to Beijing for bailouts? How many Hambantota’s can China run across Africa? Does Beijing have the fiscal, military, or administrative capacity to do so?

The simple fact is that the use of gunboat diplomacy to settle sovereign debts is no longer kosher within the international system. My guess is that while Beijing certainly was out to buy influence with loans and other commercial relations, it also wanted to make money. Chinese officials were not running around peddling cheap concessional loans (see above). They were out looking for business for Chinese firms and banks. And so to the extent that African countries mismanaged their debt or invested in economically unviable infrastructure projects (even if in collusion with Chinese firms), that is on them.

Moving forward, it is clear that it will be in China’s best interest to make sure that its commercial relations in Africa do not stray too far from general economic viability. A strategic coddling of poor and weak allies will be very costly in the long run (see France in the Sahel). It will also likely turn African public opinion against China. For a long time, majorities of African publics have reported net favorable views of China. But this will most likely change if China morphs from a largely likable development partner building roads, power lines, and water works, to little more than a banker of tinpot tyrants in the business of building white elephants and saddling future generations with debt.

The Nile has apparently not changed course in 30 million years

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How old is the Nile?

… It has been suggested that the Nile in its present path is ~6 million years old, whereas others argue that it may have formed much earlier in geological history. Here we present geological evidence and geodynamic model results that suggest that the Nile drainage has been stable for ~30 million years. We suggest that the Nile’s longevity in essentially the same path is sustained by the persistence of a stable topographic gradient, which in turn is controlled by deeper mantle processes. We propose that a large mantle convection cell beneath the Nile region has controlled topography over the last 30 million years, inducing uplift in the Ethiopian–Yemen Dome and subsidence in the Levant Sea and northern Egypt. We conclude that the drainage system of large rivers and their evolution over time can be sustained by a dynamic topographic gradient.

Apparently, an older Nile flowed through Libya, into the Sirte Rift (see image):

nile… we present geological and geophysical arguments supporting the idea that the Nile has been sustained by a mantle ‘conveyor belt’ operating through most of the Tertiary, with a convective upwelling centred under the Ethiopian highlands and a downwelling under the eastern Mediterranean, creating a topographic gradient that supported the Nile’s course over ~30 Myr. Such a course, which is similar to the present-day one, was likely established in the early Oligocene (∼30 Ma). Before that, our modelling shows that the drainage pattern was probably directed northwestward and controlled by the rifting process occurring in the Gulf of Sirte.

This indicates that at that time, rivers that drained into the Mediterranean Sea flowed farther to the west, possibly along the Sirte Rift that runs from northwest to southeast, which at that time was actively subsiding and being filled with a thick pile of sediments, indicating the activity of a large continental drainage…

Fascinating stuff. Read the whole paper here. (H/T Charles Onyango-Obbo)

As readers of the blog know, Nile waters are currently the subject of a diplomatic struggle between Ethiopia and Egypt. The US government recently offered to help negotiate a settlement. The parties involved set a January 15, 2020 deadline for negotiations. Stay tuned.

A Ugandan cartoonist’s take on the country’s relations with China

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uganda

The Ugandan president recently leaned on his administration to approve what will arguably be the most expensive road in the world. According to The East African:

In the letter, seen by The EastAfrican, the president directs the minister to stop an on-going procurement process in a move he calls ‘’controlling Uganda’s growing external debt’’ but which technocrats in his government say is likely to deny the country an opportunity to lower the cost of the project.

The road will cost $14.7m per kilometre.

Trends in trade and influence in Africa

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Here are some interesting figures from the Center for Strategic & International Studies. Between 2010 and 2017 trade between African states and China rose from $91.2b to $165.4b. For the U.S. total trade volume contracted from $80.3b to $36.7b (admittedly some of this driven by declining oil prices). All major Western countries saw a decline in their trade volume with the Continent.

trade trendsGermany is the only major Western country that saw its trade volume with African states increase over the same period.

These figures also underscore the recent narrowing of the Red Sea – with Gulf states pushing for ever closer ties with African governments. A lot of focus has been on the geopolitical aspects of this shift (with Qatar and Turkey jostling for influence vs Saudi Arabia and other Gulf states). But as the trade data suggest, trade is also an important feature of the evolving Afro-Arabia relations.

Overall, it is likely that African states’ economic policies and regulations, as well as votes at the UN, will shift to reflect the changes in the strength of the Continent’s trade links.

More on this here.

Japan is trying to stem the decline of its economic influence on Continent with a new joint insurance product with African Trade Insurance Agency and a Saudi bank. The U.S. is about to launch the U.S. International Development Finance Corporation.

 

Rural Bias in India?

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We all know about the phenomenon of urban bias. But in India, there appears to be strong political incentives for rural bias.

This is from Bloomberg:

It’s an election year in India, with the world’s largest polls expected in the spring. The focus of politicians is, as usual, on farmers and rural areas and competitive pandering to both — hardly surprising in a country that considers itself a nation of villages.

However, this narrative has one major flaw. India is, in fact, more urban than politicians know or acknowledge. This seriously affects India’s growth prospects, leading to inefficiencies and loss of productivity in both rural and urban areas. What’s worse, the resulting misallocation of resources is making India’s blossoming urban areas well-nigh unlivable.

…. The consequences of underestimating the urban share of the population are dire. Resources are badly misallocated: By one estimate, over 80 percent of federal government financing still goes to rural development. This reduces incentives for politicians, especially rural ones, to change the status quo. Tens of millions of Indians who live in dense, urban-like settlements are governed by rural governments that lack the mandate and the money to deliver basic services. In India, urban governments are constitutionally required to provide things such as fire departments, sewer lines, arterial roads and building codes. Local bodies in rural areas aren’t.

Read the whole thing here.

Things are different in Thailand. According to The Economist:

The World Bank reckons that over 70% of Thailand’s public expenditure in 2010 benefited Greater Bangkok, home to 17% of the country’s population. In no other economy with a comparable level of income is government spending as skewed, say the bank’s economists.

 

 

 

How can African governments increase their bargaining power vis-a-vis China?

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Folashade Soule has answers.

First, a reminder that African governments are not uniformly bad at negotiating with China:

….when you look closely at what happens on the ground, some African countries are much better at negotiating with the Chinese than others. Railway projects in East Africa appear to be a good example. In Kenya, the Standard Gauge Railway is the largest infrastructure project since independence from Britain in 1963. China Eximbank provided most of the finance for the first phase – 472 kilometres of track between Nairobi and Mombasa – at a cost of US$3.2 billion.

In neighbouring Ethiopia, an electric train line from Addis Ababa to Djibouti, which is also Chinese-financed, opened two years ago. The cost for this more expensive type of railway was US$3.4 billion – for 756 kilometres. Kenya claims that its railway cost more for reasons like the terrain and the need to carry higher volumes of cargo. At the same time, however, many believe other issues to have been at play – including failures around the negotiation process.

Second, there are Soule’s suggested remedies:

Involve everyone: When all relevant government departments are involved in a negotiation, it does take longer. The process is more coherent, however, and the resulting project is less likely to breach national regulations.

Empower negotiators: The Chinese often adopt a take-it-or-leave-it approach. In many cases, Africans are not confrontational enough in return. They don’t appreciate that China has a surplus of domestically produced materials they are seeking to offload, for example. Wiser negotiators will play China off against other countries seeking to finance infrastructure projects on the continent, such as South Korea or the United Arab Emirates.

Keep the public onside: China tends to be popular in Africa – more so than the US in around 60% of countries on the continent. Yet the public also see negatives: many think Chinese products are poor quality, while there is a growing perception that dealing with China tends to favour Chinese labourers.

Increase knowledge: African governments are still relatively new to dealing with China; they should take every opportunity to share lessons with one another. There is a role for African universities here. They should set up more centres of Asian studies to close the gap in information and knowledge.

I fully agree.

While it is true that China has geopolitical ambitions in Africa, a lot of Chinese infrastructure plays in Africa are commercial in nature. It is in China’s interest that these projects succeed. That means that African governments could get better deals (in terms of value for money) by doing their homework (on Chinese politics and commercial and institutional architectures) before chasing the money. Similarly, public opinion presents a potential bargaining chip — (the threats of ) transparency and robust public participation should force Beijing’s hand in settling for better deals (from the perspective of African governments). 

All this, of course, is predicated on the assumption that African elites get loans from China to finance infrastructure projects; as opposed to dreaming up projects in order to get loans that then find their way into private bank accounts. 

Read the whole thing here.

H/T Zainab Usman.

The wonder that is Chinese growth

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Below is an amazing illustration of shifts in the sizes of leading global economies:

For more on China see here, here, here, and here. This reminded me of this graphic from Carlos Lopes, former head of the UNECA:Dr3w9PhW4AAnCGU

All that happened in just 36 years. Time is on Africa’s side. If (and that’s a big IFF) African elites can get their act together. As shown in the graph below, the lost long decade (1980-1995) was particularly brutal for African economies — but it was a temporal dip and not a permanent feature of African economies.income

It is also worth noting that in 1980 African states and China were not at the same level of institutional development. By that time China had already accumulated centuries of coherent stateness — which made it possible for elites to optimally allocate human and capital resources in ways that produced the growth miracle.

Here is a good nuanced take on trends in economic growth and development on the Continent.

Nigeria fact of the week

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This is from Bloomberg:

Nigeria loses $19 billion annually, or about 5 percent of gross domestic product, from the delays, traffic, illegal charges and insecurity that are increasingly prevalent at its ports, the Lagos Chamber of Commerce & Industry said in a report this year.

For perspective, that is slightly larger than the Zimbabwean economy.

The U.S. tops list of FDI projects in Africa

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This is from EY’s 2018 Africa Attractiveness report:

Screen Shot 2018-10-30 at 5.27.43 PMMature market investors continue building on their deep-seated ties to Africa. In 2017, the US remained the largest investor in the continent, with a noticeable 43% growth in FDI projects. Western Europe, another well-established investor, also built on its already strong investments into Africa, up by 17%. However, emerging-market investments fell, with both intra-regional and Asia-Pacific investment declining by 12% and 13%, respectively. This is, in part, attributable to slower emerging markets growth and weak commodity prices.

It is odd that this report does not give the dollar values of FDI projects. But it has a summary of the distribution of projects and the number of jobs created. This is an important indicator because it reveals projects’ real impact on the real economy — as opposed to projects designed to create enclave economies. Notice that China is far and away the leader on this metric — with Chinese projects resulting in nearly three times as many jobs as American projects (FDI from Italy appears to be particularly good at producing actual jobs).

Screen Shot 2018-10-30 at 5.40.30 PM

Here’s another interesting observation on the sectoral focus on FDI projects from the report:

Over the past decade, we have discussed a shift from extractive to “consumer-facing” sectors, thanks to Africa’s growing consumer market. Mining and metals, along with coal, oil and gas, previously the major beneficiaries of FDI flows, have slowed, while consumer products and retail (CPR), financial services, and technology, media and telecommunications (TMT) have risen.

In 2017, FDI shifted somewhat, with consumer-facing sector investments slowing, in line with challenging operating conditions. The focus changed instead to manufacturing, infrastructure and power generation.

And finally, here are of “FDI-to-jobs” conversation rates. On this measure South Africa and Kenya stand out for their apparent inefficiency in converting FDI projects into jobs.

Screen Shot 2018-10-30 at 5.54.29 PM.pngMore on this here.

 

 

Kenya trade fact of the day

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This is from the prospectus issued by the Kenyan Treasury ahead of its $2b eurobond issue in late February.

Africa is the largest market for Kenya’s exports, accounting for 40.7 per cent. of total exports in 2016, and 37.7 per cent. in the nine months ended 30 September 2017. The Common Market for Eastern and Southern Africa (“COMESA”) remained the dominant destination of exports, accounting for approximately 72.5 per cent. of the total exports to Africa and 30 per cent. of total exports in 2016.

The European Union continues to be Kenya’s second largest export market, accounting for 21.0 per cent. of total exports in 2016 and 21.6 per cent. in the nine months ended 30 September 2017. Exports to the European Union declined by 3.7 per cent. in 2016, with exports from the United Kingdom and Germany, two of the top three destinations of Kenya’s exports within the European Union, declining by 7.6 per cent. and 5.2 per cent., respectively, in the same period. In addition, a large portion of foreign tourists visiting Kenya are from Italy, Germany, the United States and the United Kingdom, which accounted for a combined 38.2 per cent. of departing tourists in 2016.

A decline in demand for exports to Kenya’s major trading partners, such as the European Union or COMESA countries, or a decline in tourism receipts, could have a material adverse impact on Kenya’s balance of payments and economy.

Over the last five years intra-Africa trade as a share of total trade in the region has risen from less than 12% to about 18%. With the implementation of the African Continental Free Trade Area this figure will jump to over 25%, and will likely grow faster over the next four decades as the African population explodes to over 2 billion people.

Read the while thing here.

Is Ethiopia in the midst of a green revolution?

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This is from Bachewe and co-authors in World Development:

Screen Shot 2018-03-14 at 8.34.44 AMDespite significant efforts, Africa has struggled to imitate the rapid agricultural growth that took place in Asia in the 1960s and 1970s. As a rare but important exception, Ethiopia’s agriculture sector recorded remarkable rapid growth during 2004–14. This paper explores this rapid change in the agriculture sector of this important country – the second most populous in Africa. We review the evidence on agricultural growth and decompose the contributions of modern inputs to growth using an adjusted Solow decomposition model.Screen Shot 2018-03-14 at 8.35.03 AM We also highlight the key pathways Ethiopia followed to achieve its agricultural growth. We find that land and labor use expanded significantly and total factor productivity grew by about 2.3% per year over the study period. Moreover, modern input use more than doubled, explaining some of this growth. The expansion in modern input use appears to have been driven by high government expenditures on the agriculture sector, including agricultural extension, but also by an improved road network, higher rural education levels, and favorable international and local price incentives.

The improvement in agricultural productivity was driven, in part, by deliberate state investment in agriculture:

Ethiopia is one of only four African countries to have implemented the CAADP agreement of a 10% target of annual government expenditures going to agriculture over the 2003–2013 period.

… The GoE has for a long time put agriculture at the center of its national policy priorities. The Agriculture Development Led Industrialization (ADLI) strategy was formulated in the mid-1990s to serve as a roadmap to transform smallholder agriculture in the country. Rural education and health, infrastructure, extension services, and strengthening of public agricultural research were among its top priorities.

These gains are remarkable (if we can trust the state statistical agency data used in the analysis). They are also likely not replicable in other countries across the Continent on account of the high variance in state capacity in the region.

For instance:

[while the] Comprehensive Africa Agriculture Development Programme (CAADP) proposed that African countries allocate 10 percent of their total annual budgets toward boosting agricultural productivity…, only 13 countries [have] signed the CAADP compact (Benin, Burundi, Cape Verde, Ethiopia, The Gambia, Ghana, Liberia, Mali, Niger, Nigeria, Rwanda, Sierra Leone, and Togo).

And out of these 13 only Cape Verde, Ethiopia, Ghana, and Rwanda seem like they have the capacity to translate state fiscal outlays into real productivity gains in agriculture.

Read the whole paper here.

Cash and Markets in Development

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This is from a story in Kenya’s Standard Newspaper:

Martin Wepukhulu is a small-holder farmer in Trans Nzoia County, popularly described as Kenya’s breadbasket. To produce a two-kilogramme tin of maize known as gorogoro here, he spends about Sh25 on land preparation, seeds and fertilisers on his one-acre farm.

Some 270 kilometre away in Turkana County, one of Kenya’s poorest counties, is Loseny Nguono, a goat keeper, with two wives and 13 children. Turkana is one of the 23 counties affected by drought which has left close to 4 million people in danger of starvation.

Loseny receives Sh8,000 after every two months from the national government through the national safety net programme. He is willing to pay Martin a decent Sh70 for his gorogoro of maize. Unfortunately, neither Martin nor Loseny will get his wish. A reclusive government, ruthless cartels, dilapidated roads and marauding bandits conspire to ensure that while Martin sells his cereals at a low of Sh40, Loseny buys it at a high of Sh150.

Read the whole thing here.

It is great that Loseny has cash; and that unconditional cash transfers for social protection are increasingly becoming a mainstream policy option (notice that the story doesn’t even acknowledge the awesomeness of this reality). But the other lesson that we can learn from the story is that in order to get Loseny out of poverty we need good roads, properly functioning markets, and security. All these are public goods that must be provided through collective action, above and beyond the improvements in Loseny’s private consumption.

Turns out oil prices are so low it’s cheaper to sail 9,000km around Africa than cross the newly expanded Suez Canal

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Screen Shot 2016-03-03 at 9.50.15 AM

This from the Mail & Guardian:

Essentially, it makes more business sense to sail the longer distance – even though the Suez Canal shortens the Europe Asia trade route by at least 9,000 km – and burn more fuel by increasing speeds.

With oil touching $30 a barrel, a recent analysis by SeaIntel, a maritime monitoring group suggests that if shippers can accept an extra week of transit time by sailing south of Africa, it would save them an average of $17.7 million a year per vessel, in transit fees.

According to the analysts the Suez Canal would need to reduce fees by around 50% – and the Panama Canal which similarly affected by 30% – for crossing to be commercially viable for long-haul ships.

Also:

That’s bad news for Egypt, which spent $8 billion on expanding the Suez Canal, opened with much fanfare last year. The expansion, accomplished in a record one year, was intended to reduce waiting times from 18 hours to 11 hours. Authorities said they expected canal revenues to more than double from the annual $5.5 billion in 2014 to $13 billion by 2023.

On a related note, if you are interested in shipping and global trade be sure to read Marc Levinson’s The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. I recently picked it up and really like it so far.

H/T Charles Onyango-Obbo