The top 20 best countries to invest your money in Africa

This is according to the latest Ernst & Young’s Africa Attractiveness Report (2016). Kenya is ranked 4th. Ahead of Tunisia, Mauritius, and Botswana. You just need to spend a few hours in Nairobi, or the other 46 county headquarters, to understand why. While economic inequality remains to be a huge (political) challenge, it’s hard to argue against the structural transformations underway in the Kenyan economy.

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More on this year.

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.

Five Things You Should Know About the Ongoing Monday Protests in Kenya

Over the last couple of weeks opposition parties in Kenya have staged public protests across the country demanding for personnel changes at the Independent Electoral and Boundaries Commission (IEBC) — Kenya’s electoral management body (EMB). This week’s Monday demonstrations turned violent in some towns and cities, with at least four people reported dead at the hands of anti-riot police.

The organizers of the protests have vowed to keep at it every Monday until the current IEBC commissioners resign. Here are the five things you need to know about the protests:

  1. A plurality of Kenyans have lost faith in the IEBC (see here). Screen Shot 2016-06-07 at 8.07.41 PMIn the run up to the 2013 election, several members of the commission (then known as IIEC) and its secretariat were implicated in graft (known as the chickengate scandal) involving a number of British companies. These individuals’ accomplices were found guilty by UK courts; and court documents explicitly mentioned the Kenyans that were bribed by their UK counterparts. Yet a number of those adversely mentioned in the UK court documents continue to remain in office — including the chairman of the commission, Issack Hassan. It is partially for this reason that a plurality of Kenyans (including politicians on both sides of the political divide) have lost faith in the IEBC.
  2. Opposition politicians, including those in CORD and KANU, want the IEBC reconstituted over suspicions that its current leadership favors incumbent Uhuru Kenyatta and the governing Jubilee Alliance. CORD (in my view, erroneously) maintains that the IEBC was used to rig the 2013 election in favor of President Kenyatta. KANU has most recently accused the same EMB of rigging the Kericho senatorial by-election in favor of the Jubilee candidate. CORD has also argued that its failure to meet the threshold for a popular referendum (dubbed Okoa Kenya) —  whose main thrust was a change in Kenya’s electoral laws — was a result of bias within the IEBC. CORD wants the IEBC reconstituted and the new commission to have proportional representation of parliamentary political parties. Although the constitution lays out the procedure for removing commissioners of an independent entity like IEBC (through Parliament), CORD is wary of this option due to its minority status in the legislature. Initially it pinned its hopes on a popular referendum. But when that failed it resorted to mass action in a bid to strategically influence any eventual institutional reform of the IEBC (in my view this eventuality can partially be blamed on the singular failure of the(Jubilee) leadership of the National Assembly).
  3. The Uhuru Kenyatta Administration is caught between a rock and a hard place. On the one hand, it is hard for the administration to defend an obviously tainted EMB. This would also go against its continued claim that the IEBC is an independent body. But at the same time, the administration needs a reform path that will not embolden the opposition. The thinking within the Jubilee Alliance appears to be that if they give in to CORD on IEBC, what will CORD demand next? The contention that any and all reforms touching on the IEBC should follow constitutionally stipulated channels is partly motivated by this fear. In this regard, if CORD is genuine about surgical reforms specifically targeting the IEBC, it’s leadership should perhaps think of a way to credibly signal to the Kenyatta Administration that their reform agenda is limited in scope. From a purely political standpoint, President Kenyatta has reason to be cautious about the potential to open a whole pandoras box of constitutional reforms.
  4. Police brutality is (still) common in Kenya. Screen Shot 2016-06-07 at 7.27.32 PMOne of the goals of Kenya’s new political dispensation following the adoption of a new constitution in 2010 was police reform (majority of the 1,300 killed in the post-election violence of 2007-8 were shot by police). The institution even changed its name from Police Force to Police Service; and an independent police oversight authority was created (to democratize the institution through civilian oversight). But experience since 2013 has shown that these attempts at reform have not yielded any tangible results. The Police Service is still as corrupt as ever. And has little consideration for constitutional limits to its use of force (see image). Which means that more Kenyans will be killed in the hands of the police if the Monday protests continue.
  5. The 2017 presidential contest will likely be more competitive than most people think. Six months ago I would have predicted a landslide reelection victory for President Uhuru Kenyatta in 2017. Not anymore. President Kenyatta is still the favorite to win (because of incumbency advantage). But the jostling over control of the IEBC and the Supreme Court are telltale signs that the political class is expecting a close contest that will likely be disputed. It says a lot that despite being the incumbent, President Kenyatta’s poll numbers have stubbornly stuck in the low 40s (he can thank mind-blowing corruption and general Public Sector incompetence for that). This means that unless we see a drastic shift in regional alliances, next year’s election will most likely go to a runoff contest between Kenyatta and Odinga — which will be close. The more reason to have credible institutions in the form of a trusted IEBC and a Supreme Court beyond reproach. 

What does this say about overall political stability in Kenya? At this point in time I am a lot  more worried about county-level electoral violence than a 2007-08 style national disaster. That said, there is reason to fear that continued police brutality, especially targeting opposition supporters, may trigger wider civilian violence against presumed Jubilee supporters.

It is a little too early to talk specifics about next year’s presidential election. But what is clear is that Kenyatta’s reelection battle will no longer be a walk in the park.

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.

 

President Uhuru Kenyatta’s State of the National Address to Parliament

On Thursday President Uhuru Kenyatta presented his annual report to the joint session of Parliament. You can find the text of the speech here and the youtube clip here.

Key achievements of his administration over the last three years include (i) rural electrification (nearly all primary schools have been connected to the grid — THIS IS PRETTY BIG DEAL); (ii) the construction of a new railway line (the project is a corruption boondoggle, but the speed with which it is being carried out is stunning); and (iii) power generation.

Below is a word cloud showing some of the issues the president focused on. Corruption, health (hospital), security, and general service provision were the main policy areas that the president chose to focus on.

I was surprised by the failure of “agriculture”, “land”, “education”, and “infrastructure” to make the top twenty. “Road” had a respectable show. There was also a lot of politics — mainly directed at the opposition and civil society.

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Perhaps in reaction to David Ndii’s provocative article on the failure of the Kenya Project, the president’s speech was particularly nationalist. The words “Covenant” and “Nationalist” appeared 27 and 22 times, respectively, well ahead of key policy-related terms.

I am personally worried that the word “development” outperformed “economic/economy.” I hope this is not a signal that the government views the running of the economy as a massive “development project.” We all know how those usually turn out.

 

Hard truths about the Kenyan economy

The World Bank has just released a must-read report on the state of the Kenyan economy. Here is just one of many excellent observations about the structural impediments to accelerated growth in Kenya:

Screen Shot 2016-03-09 at 11.00.50 PMCompared with other fast-growing economies, Kenya invests less and the share of investment financed by foreign savings is higher. The economic literature and post-World War II history illustrate that investment determines how fast an economy can grow. Kenya’s investment, at around 20 percent of GDP, is lower than the 25 percent of GDP benchmark identified by the Commission on Growth and Development (2008). Kenya’s investment rate, as a share of GDP, has also been several percentage points lower than the rate in its peer countries. At the same time, the economy has largely relied on foreign savings as a source for new investment since 2007, while national savings have been declining. National savings—measured as a share of gross national disposable income (GNDI)—has not surpassed the 15 percent mark over the past decade. In contrast, Pakistan’s savings is above 20 percent of GNDI, and Vietnam’s is more than 25 percent. Cambodia had a low savings rate in the 1990s, but it more than doubled the rate in the 2000s.

You can find the whole report 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.

Thoughts on the Uhuru Kenyatta Administration in 2016

This is from Kenya’s leading newspaper, the Daily Nation, addressing the president:

We acknowledge the fact that it has been a tough year for leaders across the world — what with global economic upheavals and terrorists wreaking havoc everywhere.

However, we reject the almost criminal resignation and negligence with which your government has responded to our national crises this past year. We need not recount the number of lives lost, the losses incurred by businesses and opportunities wasted for millions of Kenyans due to the incompetence of the Executive.

With the exception of a few family businesses and tenderpreneurs who raked in billions of shillings — thanks largely to political patronage — everyone is losing money in this country.

More on this here. Read the whole thing.

This is pretty direct, and articulates a narrative of the middle class’ general dissatisfaction with President Uhuru Kenyatta’s administration.

It will also have very little political impact.

First, the Kenyan middle class (the primary audience of the Nation) is tiny. Second, the same middle class is as much a hostage of identity politics as is the rest of the country (this is true of even for the Nation‘s editorial team) — and on this score Kenya’s demographic profile favors Mr. Kenyatta in the next election scheduled for August next year (All indications suggest that a breakup of the Jubilee Alliance ahead of 2017 is a low probability event). Third, there still exists a wide chasm between the middle and upper middle classes and the vast majority of working class and rural Kenyans (with the former group perpetually wondering why the latter group doesn’t vote for its interests). This is why identity politics continue to dominate even cosmopolitan counties like Nairobi, Kisumu, Nakuru, and Mombasa.

That said, here are some quick thoughts on the Jubilee Administration as it enters its fourth year:

  1. President Uhuru Kenyatta is a politician: That means that he will invariably only take action that is consistent with his perceived political interests — getting reelected in 2017; keeping his political lieutenants and the wider Jubilee coalition happy; taking care of his core base; et cetera. Reformists who imagine that the president can operate outside of Kenya’s political system are bound to be disappointed. And those who equate Uhuru Kenyatta to Daniel arap Moi are missing the point by miles. Moi micro-managed. Kenyatta II delegates (Kibaki and Kenyatta I delegated, but with relatively better monitoring).
  2. The Kenyatta Administration’s biggest problem is too much delegation without sufficient monitoring: Much of the criticism of the Administration tends to be packaged in the language of “political will” — if only Kenyatta REALLY wanted to change things. The truth, however, is that the president faces both political and organizational obstacles to reform. Administrators continue to stonewall reform at will; and the administration remains too top heavy for its own good. What needs to happen is a radical restructuring to empower the equivalent of “mid-level managers” in the Civil Service. This should be accompanied by a shift from an internal police patrol system of monitoring (characterized by an extreme form of siege mentality) to a fire alarm system — Civil Servants should be judged by what the public thinks of their work. And those found wanting should be fired. Incentives matter. Focusing on these administrative and organizational reform agendas, rather than the politics of “political will” might be more amenable to the president (see 1 above) and could yield good results — especially if they come with sufficient political cover for the president.
  3. State House is not focused on any key signature policies: Most governments tend to be judged by a few signature achievements. President Kibaki will forever be remembered as Mr Infrastructure. Thus far Mr. Kenyatta has not staked his legacy on any pet projects or policies — most of the big investments he has made (in rail, roads, and power) are on Kibaki legacy projects. This makes it very hard for him to sell any “successes.” Back in 2013 I proposed housing, agriculture, and education as possible areas in which the president could make significant improvements while building on Kibaki’s legacy. The lack of focus at State House creates the impression of an administration that dabbles in everything but closes on nothing. It also allows Civil Servants to shirk a lot. They are doing everything, but have nothing to show for it. The president would be better served if he told his staff that he will no longer show up at the launching of anything, and instead will only be available for commissioning of fished projects. Incentives matter.
  4. Perception is everything in politics: Narratives matter in politics. They also tend to be sticky and self-fulfilling. It is going to be hard for the president to sell his successes — including in energy and electricity access and continued investment in Kibaki legacy projects — if the public is convinced that his administration is failing on every front.
  5. What is William Ruto’s strategy? President Kenyatta has had a rough three years. By his own admission the war on corruption and malaise in the public service has proven to be a lot harder than he imagined it to be. But he is a Kenyatta, and will most likely be reelected next August. Ruto, the Deputy President, hopes to succeed Kenyatta in 2022. However, Ruto’s electoral success will hinge on the Administration’s performance over the next seven years. Also, Vice Presidents typically take the fall for the boss if things go wrong. It is not clear to me how Ruto would be a successful candidate in 2022 if the Kenyatta II era is judged to have been a failure (especially since it will be judged against the Kibaki era). Given this reality one would expect Ruto to do his all to make the administration work for Kenyans, instead of relying solely on patronage. Kenya has changed a lot since 2010; and will have changed even more by 2022. Performance will matter a lot more then that it does now, even for rural Kenyans. I am constantly surprised that this fact does not seem to bother the man from Eldoret.
  6. What to look for in 2016: The management of Kenya’s public debt (which will impact movements in domestic interest rates, with knock on effects on growth); continued investment in key infrastructure, including transportation and power generation (by year end nearly all primary schools in the country will be on the grid, a pretty big deal); a rebound in tourism (he has his faults, but CS Najib Balala is probably the best man for the job at tourism); and continued growth in construction (which grew by 14.1% in Q3 of 2015). I remain cautiously optimistic about the handling of monetary policy. The Governor of the Central Bank, Dr. Patrick Njoroge, is probably the most respected technocrat in the country.

Historically, growth in the Kenyan economy tends to slow down by about 0.5 percentage points during election years. This time is probably not going to be different. That said, I expect the economy to remain on a positive growth trajectory (above 5% growth p.a.) going into 2017.

On the political front, the role of the Governors of Kenya’s 47 counties will the biggest wildcard. Many of these mini-presidents have amassed financial war chests and created networks that will prove consequential in 2017. True to Kenyan form, a number of them are already founding their own parties (the true District Parties are back, with cash). The balancing effects of governors (vis-a-vis established national politicians) creates a reality in which no one is fully “in charge” in the Jamuhuri, a fact that comes with all sorts of frustrations and fears. But sometimes that is a good thing. Especially when Kenyans and their indefatigable biashara habits are involved.

Lastly, expect to see more hard-hitting criticism of Mr. Kenyatta in the Kenyan press in 2016, much of it inspired by Kenya’s deep-seated Tanzania envy. If Tanzanian president John Magufuli maintains his reformist zeal there will be a lot of pressure on Mr. Kenyatta (#WhatWouldMagufuliDo?). Very few Kenyans will care to remember that the two presidents serve under two completely different constitutional and party regimes.

Happy New Year!