On the political transition in Angola

This is from Presidential Power:

The August 2017 elections in Angola represented a case of electoral succession in the sense that the new president comes from the same party of the outgoing president; however, it is a case of nonhereditary succession. João Lourenço was not Dos Santos’ first choice (he even tried to revert the MPLA candidates’ list for the 2017 elections) and speculation around the leadership succession pointed to his eldest son, José Filomeno dos Santos (aka Zénu).

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In less than a year in office, the new president began to remove members of the Dos Santos clan from Angola’s epicenter of political and economic power. João Lourenço deposed Dos Santos’ daughter and one of the richest woman in Africa, Isabel dos Santos, from the presidency of the state oil company, Sonangol. Also, her half-brother, José Filomeno dos Santos, was removed from the chairmanship of Angola’s $5 billion USD sovereign wealth fund (FSDEA).

… these removals have been effortless, as the former president’s family neither receives the MPLA’s support nor enjoys popularity. Furthermore, João Lourenço’s actions affecting Dos Santos’ family increased his popularity levels inside and outside the ruling party and thus didn’t allow the former president to stand up for his targeted family members, as pointed out by Ismael Mateus.

Angola’s political transition is an important lesson on the dangers of institutionalized autocracy. Dos Santos’ investment in a strong MPLA made possible the seamless transition and the power shift to the new president. Convinced of continued stability in the absence of the old president and the party’s ability to handle the transition, Angolan elites were willing to let Dos Santos step down and to bandwagon with the new president once he ascended to power.

“Smarter” (and arguably weaker) autocrats know to ensure that there is no alternative focal center of power around which elites can mobilize — whether in the form of an institution or individuals. This is the Biya/Museveni/Obiang/Eyadema/Afeworki playbook.

All to say that autocracies with strong ruling party traditions on the Continent (in Angola, Ethiopia, Mozambique, and Zimbabwe) are different from the individual-centered operations across the region — in places like Cameroon, Chad, Burundi, Rwanda, Togo, and Uganda.

More broadly, across the Continent turnover dynamics are interesting in autocracies and democracies alike. Botswana’s incumbent Mokgweetsi Masisi quickly fell out with his predecessor Ian Khama after taking office. South Africa’s Cyril Ramaphosa will likely go after Jacob Zuma after this month’s election. Policy and personal differences between incumbents and their predecessors hold the promise of creating stronger incentives for institutionalized rule and constitutional protections of retired elites’ civil liberties (and the wider population as well).

 

China & Civic Architecture in Africa

China just finished a 150 million Yuan four-year project to build Burundi a new presidential palace in Bunjumbura. This is but one of many installments of China’s ongoing influences on civic architecture on the Continent. The Burundian presidential palace is grand, and sitting on an elevation appears to have been designed to project the occupant’s power. While likely not the best use of that much money in Burundi, it is an important investment in the physical manifestation of Burundian stateness.

Other major civic buildings on the continent funded and (to be) built by China include the African Union headquarters in Addis Ababa, Ethiopia, the ECOWAS headquarters in Abuja, Nigeria, and Senegal’s Museum of Black Civilizations in Dakar.

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The Museum of Black Civilizations in Dakar, Senegal

Concerns over costs (and espionage) aside, one of the under-appreciated effects of Sino-Africa relations in China’s continuing influence on African architecture. From train stations, to hotels, to high-rise apartment blocks, to libraries, China’s influence is making an indelible mark on Africa’s landscape. At the moment much of this appears to be cut-and-paste jobs with little, if any, African influence. But it is ineluctable that over time many of these foreign designs will be infused with local sensibilities and tastes in the continuing process of architectural evolution on the Continent (no more fake marble and chandeliers please!).

It is fair to say that the state of civic architecture in many African states is wanting. Many civic structures exist as physical embodiments of the malaise afflicting the African state.  The last golden age of public buildings died with the independence generation. The era’s designs focused on function, but also the implicit desire to project state power — Dar es Salaam’s austere public buildings with their long hallways and exposure to the elements (for ventilation) quickly come to mind. The economic crises of the long decade (1980-1995) virtually stalled much of the region’s architectural evolution as far as civic buildings were concerned.

The current iteration of Sino-African relations is changing this. More capitals (sub-national, national and regional) are seeing the construction of civic buildings befitting their stature. The influence of these developments will likely travel beyond their aesthetic impacts on Africa’s architectural landscape. Civic buildings are also monuments to the idea of the state.

 

Portugal used to claim to be a big country

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This map is based on one produced by Henrique Galvão in 1934, supporting the imperial ambitions of the then-new Portuguese dictator Antonio Salazar.”

Angola (pop. 30m) is three and a half times the size of Germany (pop. 83m).

If you are interested in learning more about Angola and Mozambique, see here and here.

Several African public figures (and associates) mentioned in the Panama Papers

The Guardian has an excellent summary of what you need to know about the Panama Papers, the data leak of the century from the Panama-based law firm Mossack Fonseca.The firms specializes, among other things, in incorporating companies in offshore jurisdictions that guarantee secrecy of ownership.

Here is a map of the companies and clients mentioned in the leaked documents (source). Apparently, the entire haul (2.6 terabytes of data) has information on 214,000 shell companies spanning the period between 1970 to 2016.

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The leaked documents show links to 72 current or former heads of state and government. So far the highest-ranking public official most likely to resign as a result  of the leak is the Prime Minister of Iceland, Sigmundur Gunnlaugsson (see story here and here)

For a list of African public officials mentioned in the leaked documents see here. And I am sure we are going to hear a lot about all these rich people in developing countries.Screen Shot 2016-04-03 at 9.18.42 PM

Closer to home, the Daily Nation reports that Kenya’s Deputy Chief Justice, Kalpana Rawal, “has been linked to a string of shell companies registered in a notorious Caribbean tax haven popular with tax dodgers, dictators and drug dealers.” Justice Rawal has been dodging retirement for a while. May be after the latest revelations might find a reason to call it quits.

The ICIJ website has neat figures summarizing some of the findings from the massive data haul. Also, here is a Bloomberg story on the tax haven that is the United States. 

Falling Oil Prices Weighing Down Angolan Economy

According to the IMF:

kwanzaThe oil price shock is adversely impacting the economy. Angola’s oil basket is projected to average US$53 per bbl in 2015, from slightly over US$100 per bbl in 2014, leading to large declines in fiscal revenue and exports. While oil production has recovered following the completion of maintenance work, non-oil GDP growth is expected to decelerate to 2.1 percent in 2015. The industrial, construction and services sectors are adjusting to the decline in private consumption and public investment and lingering difficulties to obtain foreign currency. Inflation is projected to reach close to 14 percent by end-2015, exceeding the National Bank of Angola (BNA)’s 7-9 percent objective. The 2015 budget will allow the central government deficit to fall to 3.5 percent of GDP, compared to 6.4 percent last year. Public debt, however, is projected to increase significantly to 57.4 percent of GDP, of which 14.7 percent of GDP corresponds to the state-owned oil company Sonangol, by end-2015. The external current account deficit is expected to reach 7.6 percent of GDP in 2015; and international reserves to drop to US$22.3 billion (about 7 months of 2016 imports) by end-2015. Meanwhile, a wide spread emerged between the parallel and primary market exchange rates, pointing to an imbalance in the foreign exchange market.

The economic situation in 2016 is likely to remain challenging as international oil prices are not expected to recover and risks are on the downside. Growth is projected to remain stable at 3.5 percent in 2016, with the oil sector growing by about 4 percent. The non-oil sector is expected to show a small improvement, growing by 3.4 percent year-on-year, driven mainly by a stronger recovery in agriculture. Inflation is projected to slow to 13 percent at end-2016, as the effect of the recent monetary tightening is expected to be felt more clearly in the second half of 2016.

More on this here.

Africa’s looming debt crises

The 1980s are calling. According to Bloomberg:

Zambia’s kwacha fell the most on record after Moody’s Investors Service cut the credit rating of Africa’s second-biggest copper producer, a move the government rejected and told investors to ignore…..

Zambia’s economy faces “a perfect storm” of plunging prices for the copper it relies on for 70 percent of export earnings at the same time as its worst power shortage, Ronak Gopaldas, a credit risk analyst at Rand Merchant Bank in Johannesburg, said by phone. Growth will slow to 3.4 percent in 2015, missing the government’s revised target of 5 percent, Barclays Plc said in a note last week. That would be the most sluggish pace since 2001.

The looming debt crisis will hit Zambia and other commodity exporters hard. As I noted two years ago, the vast majority of the African countries that have floated dollar-denominated bonds are heavily dependent on commodity exports. Many of them are already experiencing fiscal blues on account of the global commodity slump (see for example Angola, Zambia and Ghana). This will probably get worse. And the double whammy of plummeting currencies and reduced commodity exports will increase the real cost of external debt (on top of fueling domestic inflation). I do not envy African central bankers.

Making sure that the looming debt crises do not result in a disastrous retrenchment of the state in Africa, like happened in the 1980s and 1990s, is perhaps the biggest development challenge of our time. Too bad all the attention within the development community is focused elsewhere.

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.

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.

Reason for African Petro-Rulers to be Worried

Africa’s petrorulers (heads of state of Angola, Cameroon, Chad, Congo-Brazzaville, Equatorial Guinea, Gabon, Ghana, Nigeria, South Sudan, and Sudan) may be headed for tough times later this year. According to a piece by (Steve Levine) over at FP, Saudi Arabia – the world’s leading oil producer – is considering flooding the global oil markets with the aim of sticking it to the Russians and Iranians. Saudi action of this nature could lower prices to as low as US $40 a barrel from the current $83.27.

With the exception of Ghana and Cameroon, such a drop in oil prices would almost certainly lead to political unrest in the rest of Africa’s oil producers. Sudan and South Sudan are already facing huge revenue shortfalls due to a dispute over the sharing of oil revenue.

More on “The Coming Oil Crash” here.

Portugal Seeks Angolan Investment

The Portuguese once ruled an empire that included Brazil, Angola and Mozambique, among other smaller possessions. But since the loss of empire Lisbon has fared rather poorly. First it was the Brazilians who managed to economically dominate their former colonizers. The Angolans are beginning to also get in the game. Angola is one of the top three oil producers in Africa, and has the third largest economy in Sub-Saharan Africa.

The BBC reports:

Portugal’s prime minister is travelling to oil-rich Angola, which is boosting its investment in its former colonial power caught up in the eurozone debt crisis.

Angolan presidential aide Carlos Maria Feijo said Portugal’s privatisation scheme would be discussed. The International Monetary Fund has ordered Portugal to sell state companies to qualify for a bailout.

Angola’s investments in Portugal have risen sharply in recent years.

The figure in 2009 stood at $156m (£99m), compared to $2.1m in 2002, according to the Portuguese Institute of International Relations and Security (IPRIS), a Lisbon-based think-tank.

Angolan companies own the equivalent of 3.8% of companies listed on Portugal’s stock exchange, from banks to telecoms and energy, it says.

More on this here.

HT Louise Redvers

Quick hits

1. If you don’t have a summer reading list already, Blattman has one for you. The list is obviously not exhaustive, but two pressing titles I might add are Avner Greif’s Institutions and the Path to the Modern Economy and Gerschenkron’s Economic Backwardness in Historical Perspective.

2. In yet another not so nice chapter in the relationship between the Angolans and Congolese, Angola has deported thousands of Congolese. According to IRIN:

The expulsions are symptomatic of the tense relations between Luanda and Kinshasa, rooted in disputes over border demarcation and natural resources. Angola’s alleged loss of hundreds of millions of dollars in revenue due to the unauthorized artisanal exploitation of diamonds is a particular bone of contention.

3. Michelle Obama is in Africa on one of those first lady gigs. Many Africa watchers have complained that the visit does not have any real policy agenda beyond the usual talking points.

I agree.

But I would also like to point out that the failure of Africa to reap an Obama dividend is not just because of the State Dept.’s indifference to Africa but also because Africa lacks a coherent voice in Washington. Is there an Africa lobby? What does it do?

Instead of a calculated strategic response to the election of the first US president of African descent the Continent has swung from euphoria to disappointment over the fact that manna did not fall from heaven.

4. Lastly, the fortunes of the AU force in Somalia appear to be on an upswing. Now if only Somali politicians can get their act together and form a stable government.