Just How Bad is Public Debt in Africa?

Well, public debt in African states is much higher if you take into account their revenue mobilization capacities. The bigger the informal sector, the lower the debt/revenues ratio.

Consider the case of Nigeria (from the FT):

Nigeria’s accumulated government debt is just 18.6 per cent of its annual economic output, one of the lowest levels in the world, implying that its debt burden is more than manageable. But is this a fair reflection of reality?

Using a different metric, the Nigerian government’s gross debt is 320 per cent of its annual revenues, according to figures from Fitch Ratings, one of the highest figures in the world and comfortably above the median of 196 per cent for countries in Africa and the Middle East that are rated by Fitch.

More on this here.

 

More Anglophone African Students are Joining Universities in China than the U.S.

This is from Rogue Chiefs:

chinauni.pngTHE surge in the number of African students in China is remarkable. In less than 15 years the African student body has grown 26-fold – from just under 2,000 in 2003 to almost 50,000 in 2015.

According to the UNESCO Institute for Statistics, the US and UK host around 40,000 African students a year. China surpassed this number in 2014, making it the second most popular destination for African students studying abroad, after France which hosts just over 95,000 students.

And it looks like soon Africans will comprise the biggest proportion of foreign students in China:

Chinese universities are filled with international students from around the world, including Asia, the Americas, Europe and Oceania. The proportion of Asian international students still dwarfs the number of Africans, who make up 13% of the student body. But this number, which is up from 2% in 2003, is growing every year, and much faster than other regions. Proportionally more African students are coming to China each year than students from anywhere else in the world.

Also, African students in China are mostly studying mandarin and engineering:

Based on several surveys, most students tend to be enrolled in Chinese-language courses or engineering degrees. The preference for engineering may be due to the fact that many engineering programmes offered by Chinese universities for international students are taught in English.

And they are more likely than their counterparts in the West to go back home after finishing their studies.

Due to Chinese visa rules, most international students cannot stay in China after their education is complete. This prevents brain-drain and means that China is educating a generation of African students who – unlike their counterparts in France, the US or UK – are more likely to return home and bring their new education and skills with them.

Perhaps the much-discussed skills transfer (or lack thereof) from China to African states will take place at Chinese universities instead of construction sites on the Continent.

The recent decline in the number of foreign students applying to U.S. colleges and universities will no doubt reinforce China’s future soft power advantage over the U.S. in Africa.

What does this mean for research in Africa? According to The Times Higher Education:

chinauni2.pngChina’s investment in Africa is having a positive impact on research, citing China’s African Talents programme. Running from 2012 to 2015, the programme trained 30,000 Africans in various sectors and also funded research equipment and paid for Africans to undertake postdoctoral research in China.

…. the 20+20 higher education collaboration between China and Africa as a key development in recent years. Launched in 2009, the initiative links 20 universities in Africa with counterparts in China.

And oh, the Indian government is also interested in meeting the demand for higher education in Africa.

In December 2015, Indian prime minister Narendra Modi also announced that the country would offer 50,000 scholarships for Africans over the next five years.

Notice that all this is only partially a result of official Chinese (or Indian) policy. The fact of the matter is that the demand for higher education in Africa has risen at a dizzying pace over the last decade (thanks to increased enrollments since 2000). To the extent that there aren’t enough universities on the Continent to absorb these students, they will invariably keep looking elsewhere.

According to the Economist: 

Opening new public institutions to meet growing demand has not been problem-free, either. In 2000 Ethiopia had two public universities; by 2015 it had 29. “These are not universities, they’re shells,” says Paul O’Keefe, a researcher who has interviewed many Ethiopian academics, and heard stories of overcrowded classrooms, lecturers who have nothing more than undergraduate degrees themselves and government spies on campus.

In those countries where higher education was liberalised after the cold war, private universities and colleges, often religious, have sprung up. Between 1990 and 2007 their number soared from 24 to more than 460 (the number of public universities meanwhile doubled to 200).

And on a completely random note, the black line on the graph above may explain the otherwise inexplicable persistence of the CFA zone in francophone Africa.

Is Civil War in Africa Unique?

Paul Staniland raises important questions in his review of Philip Roessler’s latest book (highly recommended):

I just finished reading Philip Roessler’s excellent book for my graduate Civil War seminar. Already a fan of his 2005 piece on electoral violence, I learned a lot from the new book and highly recommend it. But, just as when reading major work by Will Reno, Reno and Chris Day, Jeremy Weinstein, Paul Collier, Jeffrey Herbst, and others, I had the reaction that “This looks nothing like the places I study.” At least in the stylized world of African politics presented in these projects (I have no idea if this is accurate), Hobbesian insecurity preys on all in the absence of any real institutions, ethnic balancing and calculation dominates any other form of politics, and regimes are held in place by fluid, shifting alignments with “Big Men” rooted in local power bases.

As a result, we get shambolic and weak central regimes prone to either coups or revolts, and rebels easily bought off by patronage or co-optation. Weinstein highlights the inability of ideological rebels to overcome waves of material resources that eliminate discipline or politics, Roessler’s regimes are simply what Skocpol calls an “arena” for political competition between social actors rather than possessing any institutions or interests autonomous from social forces, and Reno’s civil wars (with the exception of “reform rebels”) are simply a grim game of bargaining over patronage between states and insurgents that are more similar than different.

Is Africa that different?

Roessler, indeed, argues that Africa has a “unique institutional structure” in which external conflicts are rare and internal disorder common. If Africa is indeed unique, it is hard to know how arguments rooted in the African context can travel beyond Africa.

Read the whole thing here.

I would argue that there is not a uniquely African civil war story. Weak states everywhere, including in Africa, are gonna weak state.

A more useful analytical delineation is what Staniland suggests:

At minimum, I’m becoming increasingly convinced that research on civil war needs to become at least partially bifurcated into work on its dynamics in very weak states (the representation of African conflicts dominant in the literature, plus Afghanistan and a few others) versus those in medium-capacity states (India, Colombia, Indonesia, Russia, etc) that possess large, centrally controlled conventional an

Think of the Nigerian Civil War between 1967-1970. The Biafra War involved a relatively strong state facing a relatively well-organized and disciplined secessionist army — much in the mold of middle income conflicts. In the same vein, countries like Kenya and Ethiopia have managed to quell rebellions in Mt. Elgon & the south coast, and in the Ogaden, respectively, in ways that would look very familiar to Staniland.

Completely anarchic conflicts involving collapsing states and incoherent hyper-localized rebellions — your stereotypical African conflict, if you will — are a unique historical experience rooted in the states that did really fall apart in the late 1980s to early 1990s (pretty much in the midst of Africa’s continental economic nadir). It is instructive that these states were concentrated in the Mano River region and Central Africa, some of the regions worst affected by the socio-political challenges of Africa’s lost long decade (1980-1995). income

And given recent economic trends in Africa (see image), it is not surprising that conflicts are becoming rarer in Africa (much in line with Fearon and Laitin). I would also expect markedly different kinds of conflicts should they emerge. There is a reason Boko Haram has never posed an existential threat to the Nigerian state, very much in the same way that India’s Maoist rebels are a peripheral matter.

I always remind my students that the Africa they know is more often than not the Africa that existed between 1980 and 1995. We all need to update.

Answers to Some of Team Trump’s Questions on Foreign Aid to Africa

A piece in the New York Times highlights some of the Africa-related queries posed by Team Trump to the State Department. Sub-Saharan Africa’s 48 countries get $8b in U.S. aid each year. The average country receives far less than critical U.S. allies like Afghanistan ($5.5 billion), Israel ($3.1 billion), Iraq ($1.8 billion) and Egypt ($1.4 billion).

Here are some answers to Team Trump’s questions.

With so much corruption in Africa, how much of our funding is stolen? Why should we spend these funds on Africa when we are suffering here in the U.S.?

 First of all, corruption is not the biggest impediment to success in the aid business. Often, it is poor planning and execution. And most of the time this tends to be the fault of the donors themselves. Research shows that aid works best when complemented with strong local capacities. This requires knowing what those capacities are, or investing in their long term development.

I would suggest that the administration worries more about planning and execution. How can you make your aid agencies better at identifying and executing on projects? How can you help African countries improve their absorption capacity of aid dollars without too much distortion of their local political economies? How can you move away from projects predicated on good will, and into ones that are anchored on self-interest and value creation?

Africans want jobs. Not handouts. And the 0.2% of the U.S. budget that goes to this region each year can be a powerful tool for shifting incentives in the right direction as a far as job creation is concerned. Want to export more GM cars or carrier air conditioning units to Lagos? Then help create the demand by creating jobs in Lagos.

The new administration should also end the double talk of financing corruption and condemning it at the same time.

screen-shot-2017-01-14-at-2-17-58-pmTake the example of security assistance. If you want to reduce corruption in military procurement, I would suggest that you channel all assistance through the normal appropriation processes in African legislatures. More people will know how much money is going where, thereby increasing the likelihood of greater accountability. The same applies for budget support. Strengthen existing constitutional appropriation processes so that bigger constituencies get to own the aid dollars.

Leaders do terrible things all the time for political reasons, and not because of an inherent failure in moral judgment. Learn to respect and trust your African counterparts. Know their interests. Don’t think and act like it is 1601.

We’ve been fighting al-Shabaab for a decade, why haven’t we won?

Well, for a number of reasons. Kenya, Ethiopia, the U.S., and the other TTCs are working at cross-purposes. The first best option would be to strengthen Mogadishu as the center of a strong unitary state. But no one wants that. Not the Somalian elites running the state-lets that make up the federal state. Not Kenya — whose goal seems to be no more than creating a buffer stable region in Jubaland. Not Ethiopia — whose elites are more concerned about Pan-Somalia irredentism and their own domestic politics. And certainly not the TTCs — who are largely in it for the money and other favors from Washington and Brussels. The second best option would probably be to localize the Al-Shabaab problem and then strengthen the Somali state-lets so that they can be able to fight the group. However, by globalizing the “war on terror” the U.S. has largely foreclosed this option. Also, Mogadishu would not want to cede too much military power to the states.

All to say that the U.S. cannot win the fight against al-Shabaab, certainly not by raining fire from the air.

Somalians, with some help from their neighbors, are the best-placed entity to win the war. But for this to happen, all actors involved — and especially Ethiopia and Kenya — must have an honest discussion about both short-term and long-term objectives of their involvement, and the real end game.

Most of AGOA imports are petroleum products, with the benefits going to national oil companies, why do we support that massive benefit to corrupt regimes?

Again, you should not approach this problem from the perspective of a saintly anti-corruption crusader. Moralizing from the high mountains is boring, and does not solve anything. I thought the Trump Team would be into dealing with the world as it is. Appeal to the specific interests involved. Think creatively.

It turns out that public finance management is a lot harder than most people think. Don’t expect people to be honest and patriotic. Help design PFM systems that are robust to the worst of thieves.

Here, too, I would suggest a move towards mainstreaming resource sector transactions into the normal appropriation processes. For instance, the administration can introduce greater transparency in the oil business, and create stronger links between oversight authorities in the host countries and the American firms involved. This will not end corruption, but it will serve to disperse power within the oil producing countries. And that would be a good thing.

Also, a quick reminder that AGOA involves more than just oil. Africa’s tiny textiles sector benefits too. Doing more to develop this sector would create tens of thousands of jobs, thereby reducing aid dependence.

We’ve been hunting Kony for years, is it worth the effort?

Nope.

The LRA has never attacked U.S. interests, why do we care? Is it worth the huge cash outlays? I hear that even the Ugandans are looking to stop searching for him, since they no longer view him as a threat, so why do we?

I have no idea.

May be this has been used as a way of maintaining ties with the Ugandan military in exchange for continued cooperation in central Africa and in Somalia? May be it is a secret training mission for the U.S. military in central Africa?

I honestly have no idea.

Is PEPFAR worth the massive investment when there are so many security concerns in Africa? Is PEPFAR becoming a massive, international entitlement program?

PEPFAR has saved millions of lives. And I would argue that it is probably America’s most important investment in soft power across Africa.

I would suggest a few modifications, though. The new administration should think creatively about how to use PEPFAR dollars to strengthen African public health *systems* in a manner that will allow them to provide effective care beyond HIV/AIDS. Malaria and GI diseases kill way more people. These need attention, too.

How do we prevent the next Ebola outbreak from hitting the U.S.?

By strengthening public health systems in countries that are likely to experience Ebola outbreaks.

Tyler Cowen Goes to Lagos

MR’s Tyler Cowen (also Professor of Economics at George Mason) recently spent six days in Lagos. Here is what he has to say about Africa’s biggest and most economically dynamic city:

A trip is often defined by its surprises, so here are my biggest revelations from six days in Lagos, Nigeria.

Most of all, I found Lagos to be much safer than advertised. It is frequently described as one of the most dangerous cities on earth. Many people told me I was crazy to go there, and some Nigerian expats warned me I might not get out of the airport alive.

The reality is that I walked around freely and in many parts of town. I didn’t try to go everywhere or at all hours, and I may have been lucky. Yet not once did I feel threatened, and I strongly suspect that a trip to Lagos is safer than a trip to Rio de Janeiro, a major tourist destination. (In my first trip to Rio I was attacked by children with pointed sticks. In my second I found myself caught in a gunfight between drug lords). Many Lagos residents credit the advent of closed-circuit television cameras for their safety improvements.

So if you’re an experienced traveler, and tempted to visit Africa’s largest and arguably most dynamic city, don’t let safety concerns be a deal killer.

Read the whole thing here.

I have never been to Lagos, and look forward to fixing this in 2017. So far my experience of West African (commercial) capitals is limited to Dakar, Accra, Lome, Conakry, Nouakchott and Monrovia (I like them in that order). Dakar edges Accra only by a whisker, mostly on account of the seascape. I have spent way more time in Accra, and therefore my ranking might also be a function of my knowledge of Accra a little too well.

Accra beats all other cities on food. It has the most variety, and nearly all of the offerings beat the bland stuff that we East Africans consume. The grilled tilapia and banku is unbeatable.

Oh, and I must admit that I have a slight preference for Senegalese jollof. My wife insists that Ghanaian jollof is the best jollof (ahead of both the Nigerian and Senegalese variations). I look forward to sampling Naija jollof so we can finally settle this disagreement.

Nigeria has a shockingly tiny government

These are figures from an IMF Article IV country report in April of this year:

Screen Shot 2016-08-30 at 11.22.55 AM.png

The one thing that jumped at me from this table was how little(as a share of total national output) the Nigerian public sector spends. The government barely takes in 10% of GDP in revenues; and spends between 11-12%. Also, for a country at its level of development (and with an economy of its size), Nigeria is weirdly debt free (relatively speaking).

You may be thinking that these figures must exclude state government expenditures — and you are wrong. The 11-12% figure is inclusive of state government expenditures.

In my view, this is a PFM smoking gun on the distortionary effects of oil dependence. Nigerian policymakers appear to be sated with the little revenue they are consuming (as a share of GDP) from the oil sector.

For a comparative perspective, take a look at Kenya’s numbers:

Screen Shot 2016-08-30 at 11.36.28 AM.png

The Kenyan government gobbles up about a fifth of GDP in revenues, and spends about a quarter. The Nigerian government only takes in a tenth of GPD and spends just a little over a tenth. In addition, the Kenyan government’s debt/GDP ratio is twice Nigeria’s.

General government spending as a share of GDP within the OECD ranges from 33.7% in Switzerland to 58.1 in Finland. The OCED debt/GDP ratio average is 90%.

Back in grad school I took Avner Greif’s economic history class in which he emphasized the importance of organizations for economic development. Societies, big and small, organize out of poverty — by building and maintaining socially-attuned institutions that lower transaction costs. The scope and intensity of organizational capacity therefore matters for economic development (For more see here). It takes a well ordered state.

And from these two tables, it is fair to say that the Nigerian state is underperforming relative to its organizational potential. Perhaps it’s time more people in Abuja started reading Alexander Gerschenkron (however dated this might be).

 

 

Is Brexit good or bad for Africa?

Writing in Foreign Policy, Alex de Waal is certain that Brexit is terrible for African countries, and that “[e]verything from the economy to peacekeeping missions will suffer.”

The damage to British interests is significant, but the losses for [African countries] could be greater still. In campaigning to leave the European Union, Minister for Africa James Duddridge argued that Britain would be able to forge stronger ties with the continent if it were unencumbered by EU inefficiencies in aid and trade. Perhaps if Duddridge had a blank slate on which to construct a new Africa policy, he could do better than Britain’s existing one, which is part bilateral and part multilateral through the EU.farage But no policy is ever built on a blank slate, and surveying the post-Brexit political wreckage, he is now faced with a salvage job that will involve decoupling Britain from numerous EU-led peace and development initiatives and renegotiating dozens of trade deals. Even deftly managed by Duddridge or his successor, the Brexit will leave Britain with a fraction of the influence it currently wields in Africa.

And over at Africa is a Country Grive Chelwa notes that:

The one obvious channel through which Brexit could affect economies in Africa is if it triggers a recession in the UK. A recession might affect trade and investment between the two regions. The Bank of England thinks a recession might very well be on the cards. A study reviewing all studies that have estimated the likely economic impact of Brexit found: “GDP losses for the UK in the range of 10% or more [could not] be ruled out in the long run.”

How much trade takes place between the UK and Africa? Not much, it turns out. Combining data from the UK’s Office for National Statistics (ONS) and the United Nations Conference on Trade and Development (UNCTAD) for 2014, the latest year for which we have comparable data, we calculated that exports from Africa to the UK represent about 5% of Africa’s total exports. Africa is more worried about a slowdown in China, its biggest trading partner by far.

…. The UK doesn’t have the same influence on the continent that it did decades ago. And Brexit will be further proof of that. If the UK sneezes Africa will … well Africa will say “bless you” and move on.

On balance, I agree with Chelwa. It appears that with regard to the UK-Africa relationship, the Brits stand to lose more than Africa as a unit following Brexit. This is for the following reasons:

  1. Lacking the amplifying effects of the EU, UK influence in Africa will be diminished. This is bad for the UK, but not necessarily so for African states. Notice that the UK’s security objectives in Somalia or elsewhere on the Continent have not suddenly changed following the Brexit vote. We should disabuse ourselves of the notion that the UK involvement in these theatres of conflict is out of pure benevolence. It is largely to protect British interests (tourists, MNCs, aid workers, other tied aid, etc). Those interests have not suddenly changed with Brexit. Is a post-Brexit UK better off with a stable Somalia? I think so. Viewed this way, what Brexit has done is not to change British interests in Africa but to increase the UK’s transaction costs in catering to those interests. The Brits may invest less in specific peacekeeping operations, but their self-interest dictates that they will not suddenly close the taps on these investments.
  2. A diminished UK diminishes Europe, which may reduce Europe’s leverage vis-a-vis African countries. This outcome could cut both ways. On the one hand, it may exacerbate the moral hazard problem faced by African leaders by allowing them to play different European powers off each other (why invest in good governance if Europe is always at the ready to help if things go south?) But on the other hand, a weaker Europe may be less willing to bail out African leaders all the time. This might force these leaders to take their jobs seriously, thereby improving the welfare of their citizens. 
  3. It is not clear that decoupling UK aid from the rest of Europe will necessarily lead to the UK cutting its aid budget. In fact, the opposite might prove true. Going its own way may force the UK to put more aid pounds into projects in the region than it currently does under a joint EU aid budget. Again, increased transaction costs may mean the UK spending more money than it currently does in Africa, which is good for African economies. Plus the UK is likely to find itself needing to make up for the lost amplifying effects of the EU with more aid pounds.
  4. A recession in the UK may prove contagious. This would be bad for the world economy, and Africa would not be an exception. That said, I don’t think economic turbulence in Africa would necessarily lead to the conflicts of the early 1990s. With a few glaring exceptions, most African countries would be able to withstand a global recession without collapsing. We saw this during the Great Recession.
  5. The world is learning a lot about democracy by observing the challenges it currently faces in the West. Suddenly, corrosive ethnic politics is not exclusive to poor countries. “Leaders” like Donald J. Trump and Boris Johnson are not things that only happen in Zimbabwe or Nicaragua. These data points will serve to demystify democracy as a system of governance, and refocus global attention on what really makes democracy work — a stable intra-elite consensus coupled with reasonably sufficient responsiveness to the electorate (down with the fetishization of elections!!!) This will be a valuable lesson for Africa and other developing regions of the world. The ongoing sociopolitical troubles in the West are bound to liberate the worldview of leaders and other elites in the Global South, and will empower them to mold their own societies in their own image, instead of trying to turn them into Denmarks. The often-misrepresented “European mystique” has lost its shine. And this is a good thing for the world.

This is not to say that Africa’s economies will be able to weather Brexit without any non-trivial hiccups. South Africa, Nigeria, and Kenya are probably the most exposed (in that order). Other African economies will be exposed to the extent that economic troubles in the UK lead to a global recession (the gold exporters might even benefit…)

And Western security policies and support for missions in Somalia and across the Sahel may face short-term uncertainties. But these experiences will not necessarily be catastrophic (on the security front, America will most likely steady the ship).

In fact, I tend to think that the long-run impact of these experiences will be positive. English speaking African economies will have incentives to diversify their export destinations away from the UK. African countries will have more leverage vis-a-vis the UK and (a fractured) Europe (and the US). And the lessons from the political upheavals in the West will serve to liberate Global South elites to mold their own societies in their own image and in a manner that respects sociopolitical realities in their specific contexts.

Incentivizing Workshops as Substitutes for Actual Governing: The Case of Nigeria

This is from the FT:

According to figures released by the ministry, travel was the single biggest government line item from 2012 to 2014, at N248bn ($1.25bn) for the three years combined (the ministry did not provide annual figures). This is equivalent to an extraordinary 18 per cent of total government spending [Emphasis added].

……. A 2012 investigation by Nigerian newspaper Punch found that wealthy Nigerians spent $6.5bn on private planes between 2007 and 2012, making the country the biggest market for them in Africa.

Not all of them were bought with private funds. Under former president Goodluck Jonathan, Nigeria’s Presidential Air Fleet (PAF) acquired several new private jets, bringing its total to 11.

And you know a non-trivial proportion of these “study tours,” conferences, and meetings were either expensive shopping trips on the government’s tab or ploys to earn inflated per diems.

This is an instance where I’d endorse a move to “leapfrog” meetings, workshops, and conferences.

Nigeria’s Africa Internet Group posts the Continent’s first “unicorn” startup

This is from the FT:

Africa Internet Group is set to become the continent’s first “unicorn” after securing an investment valuing the ecommerce group at more than $1bn.

… African Internet Group’s valuation could be matched by Interswitch, the Nigerian fintech group that processes payments for banks, if the company decides to float later this year.

Over the next couple of decades the mobile and tech market in Africa will only grow bigger — watch out for Nigeria, Kenya, Ghana, Cote d’Ivoire ….. and Ethiopia when they finally liberalize (which I hope will happen sooner rather than later). According to the same FT piece:

Smartphones have begun to transform the way Africans live and work. The continent is projected to have 360m smartphones by 2025, when internet penetration on the continent will hit 50 per cent, according to McKinsey Consultants.

H/T Tyler Cowen.

Africa’s Demographic Destiny

Notice that these are estimates. The Journal reports:

The biggest human increase in modern history is under way in Africa. On every other continent, growth rates are slowing toward a standstill for the first time in centuries, and the day is in sight when the world’s human population levels out.

But not here — not yet.

Some 2.5 billion people will be African by 2050, the U.N. projects. That would be double the current number and 25% of the world’s total. There will be 399 million Nigerians then, more than Americans. When the century closes, if projections hold, four out of 10 people will be African.

Billions of them will be living in cities that are today small towns. The land of open spaces that was Africa will have blended into one big megalopolitan web.

More on this here.