Sunday, 27 December 2015

Weak Institutions Endanger Africa’s Progress

For the last couple of days I have been embroiled in a treatise about the challenges that face Africa and the possibility of coming up with solutions that are duly African in the dire quest to solve these challenges that have engulfed and embedded our beloved continent for decades especially in the post-independence era.
Africa has been bedeviled by many challenges but the mother of all challenges is arguably the weak governance and poor leadership that many African countries continue to grapple with decades after gaining independence from their respective colonial masters. 

In the whole world, Africa is lagging behind in social, political and economic aspects and that is why the 21st Century has been touted as Africa’s ‘special moment’ to play catch-up with the rest of the world. One thing that we need to reflect on as Africans is how Asian states that we were at par with in the 1960s,70s and 80s catapulted from trajectories that were characterized with socio-economic and political stagnation to establish trajectories that reel with tangible socio-economic growth and development.

These nations include China, Singapore, Malaysia, South Korea just to mention. In the 1960s through the 70s to the 80s, these countries were ruled by strongmen who were ironfisted, had escalated and spiraling levels of corruption and selective democracy. We need to visualize how exactly these states took-off to place themselves in the path of prosperity and how they left us behind. One of the recognizable actions that were taken by these nations was the act to establish strong institutions especially the political institutions. 

The strong institutions that were established by these nations had the mandate to put in place effective and efficient leadership to steer the country to prosperity. The leadership that was engendered by the political institutions managed to enact the policy of zero-tolerance towards corruption which had led to wastage of economic resources in the countries especially by the previous political regimes that were at the helm of the afore-mentioned nations. 

On democracy in these Asian states, one may however argue that a country such as China does not have absolute democracy which is very true but now there is a difference with many African countries; the enactment of term limits for the political leaders. Majority of the African countries are failing to prosper and hence stagnate socio-economically and politically because the political leaders cling on power for so long.

In my opinion, term limits help to avoid the vagueness, ambiguity and laxity that is associated with being in power for so long. Is it that countries such as Rwanda, Uganda, Zimbabwe, Burundi and others lack alternative individuals who can take over and ensure that these countries move on with life? Or is it just the lame mentality that once in power, you’ve got to rule for eternity and make the citizens believe that you are only comparable to Messiah and use any means to be in power?

Certainly, because most African nations have very weak institutions we end up having a weak African Union that is entirely less effective in the execution of its mandate and in the implementation of various objectives that are supposed to transform Africa. The lack of pure Pan-Africanists has largely contributed to a weak AU that always barks and seldom bites. When I look across the continent, I see no leader who can claim to be a Pan-Africanist in toto, one who champions for the adoption of African solutions to the many challenges that face Africa. It is because of the dwindled spirit of Pan-Africanism that we need the likes of Jomo Kenyatta, Kwame Nkrumah, Julius Nyerere, Milton Obote, Thomas Sankara, Patrice Lumumba etc to possibly resurrect from their graves and show the way to the current crop of leaders.

A very significant lesson that African leaders and citizens in general need to learn about is Argentina’s progress which has been characterized by stagnation and mark-timing because of a weak and at times moribund political institution. At one time, several hundreds of years ago, Argentina was the most developed country in the world going by historical and anthropological studies of the Aztec and Inca civilizations. Afterwards, particularly in the 20th century, coup d’├ętats and the establishment of governments ruled by the military junta were the norm. These coups have been Argentina’s tradition and this has made this country to be classified as the ‘next’ economic giant for very many decades and this economic prophesy has never come to pass and will possibly never materialize until a strong political institution is put in place.

If we are not keen and careful, this is likely to be the route that Africa is gonna take in case establishment of strong governance institutions isn’t prioritized and the African Dream popularly known as the African Renaissance will remain a mirage for eternity. The African Renaissance is an ideology that was propagated and popularized by an African scholar known as Cheikh Anta Diop a Senegalese national way back in 1946. The African Renaissance as envisaged by Anta Diop would be a period of time that social, economic and political development would take place in Africa. This ideological disposition is otherwise known as Diopism.
In the 1980s and 90s, the defunct Organization of African Unity (OAU) was not so much committed to the realization of the so much talked about revelation. As the AU was set up in the early 2000s, Thabo Mbeki the then President of South Africa revitalized the same philosophy and ideology that even culminated in the establishment of the African Renaissance Institute. However, up to now the AU has not been effective in championing for Africanized solutions to the challenges and problems that face Africa.

It is because of the weak political institutions that as Africa we are oscillating at one place. With weak political institutions, economic institutions will also be weak. It is because of weak political leadership that Africa cannot unite to speak as one on matters that are very important only choosing to speak and slam the ICC while it has failed to actualize the establishment of the African Court of Justice. As a matter of fact, the crisis experienced in Burundi could be averted in April 2015 when Pierre Nkurunzinza had intentions to change the constitution but the AU chose to simply ignore the matter. Moving on, the same AU can hardly call for the dissolution of the many fragmented trading and/or economic blocs and form an African Free Trade Area or economic union. This would be a significant step towards getting an African homegrown solution towards decimating the foreign aid that has hardly helped Africa to develop.

With hindsight, the foreign aid that we have received has not been effective because it is channeled towards governments that are characterized with poor and ineffective political institutions. In a nutshell, weak political institutions are extractive in nature while strong political institutions are inclusive. Extractive political institutions lead to extractive economic institutions whilst inclusive political institutions beget inclusive political institutions. For African countries to play catch-up with the developed nations, inclination towards the establishment of inclusive political institutions is vital in addition to the utilization of the late-comers advantage of borrowing ideologies and ideas from different developed countries and further amalgamating them. So, Africa’s development complacency is rooted in the fragmented institutional framework that is in existence.

Sunday, 13 December 2015

Facts, Fallacies and Fantasies of The Eurobond

Was the Eurobond properly used? This is the question that currently lingers in the mind of concerned Kenyans. Since the time that the Controller of Budget Agnes Odhiambo raised questions on its spending and the apparent stashing of the cash in accounts located in foreign countries, we have been treated to a game of circus as the government has not tabled the specifics about the expenditure of the Eurobond.

After the issuance of the $2 billion sovereign bond, the chiefs at the national exchequer committed a pecuniary error by breaching the Article 206, Section 17(2) of the Public Finance and Management Act of our constitution by making the payments to an overseas account. The aforementioned act states that the sovereign bond has to be paid directly into the Consolidated Fund through the Exchequer Account. This is one factual act that the practicing economists at the National Treasury wrongly committed. It was this constitutional contravention that apparently led the Controller of Budget to raise questions on the accountability of the funds but later on made a u-turn and declared that the proceeds from the bond were properly utilized. The circumventing by the Controller of Budget was a suspicious act because she seemed to have been threatened by the ‘tyranny of numbers’ brigade of being smoked out of the office.

Fast forward, the three main objectives of the proceeds from the Eurobond were as follows: first, to reduce on the amount of money that the government borrows domestically. Secondly, to stabilize the exchange rate and thirdly to ease pressure on the foreign exchange reserves. So have the objectives been achieved? The answer is a plain NO. The Jubilee administration seems to be reeling from the effects of instituting and choreographing a weak and poor macroeconomic management strategy. If indeed the finances raised from the Eurobond were to reduce the rate and level of domestic borrowing by the government, why are we witnessing escalating levels of domestic borrowing? 

In August this year, the total domestic debt was shs.1.38 trillion and by the end of the month of November 2015, it had risen to a tune of shs.1.47 trillion. This certainly contravenes the spirit of reducing on domestic borrowing. High levels of domestic borrowing by the government have one greatest danger; the crowding-out effect of the private sector. The government can borrow money at any interest rate and so if it decides that it will issue out the bonds and the securities, most commercial banks will prefer buying the securities from the government to lend it money because of the attractive interest rates rather than lending the same money to the private sector. This leaves little amounts of finances to be used by the private sector and in the medium-term and long-term leads to a stagnated rate of economic growth and development. It is therefore a fact that the National Treasury has failed to reduce on the levels of domestic borrowing.

In addition, the proceeds from the Eurobond have done little to be able to maintain a stable exchange rate of the Kenyan shilling against the US dollar. At the time of the issuance of Kenya’s first ever sovereign bond, the exchange rate was approximately shs.87 for $1 but currently the shilling exchanges the dollar at the rate of shs.102 for $1. This is a failure by the Treasury chiefs and it is a fact. However, they may put forth the argument that we have a floating exchange rate system and not a fixed one but now they themselves crafted a mediocre and economically warped thought that the Eurobond would stabilize the exchange rate. This is some bit of hotheaded economics because essentially, we are largely an import-based economy and in any case we export primary products that are not wholly processed. Hence, it’s a fallacy to try and imagine that proceeds from a sovereign bond can stabilize the exchange rate of an economy that thrives on importing most of its locally consumed products and one that survives on exporting primary products.

According to the National Treasury, out of the shs.250 billion raised from the Eurobond, shs.196.9 billion is said to have been channeled towards the financing of infrastructure projects in the country while shs.52.3 billion is believed to have been used in servicing a syndicated loan that the government obtained from three commercial banks in May 2012. These banks were the Citibank, Standard Chartered Bank and the Barclays Bank. The National Treasury has come out strongly to state that the shs.196 billion was allocated to various ministries and state departments as follows:
            Department of Infrastructure               shs.49.3 billion
            Ministry of Planning                            shs.44.5 billion
            Ministry of Energy                               shs.18.1 billion
            Department of Water                            shs.11.1 billion
            Department of Agriculture                    shs.11 billion
            Ministry of Lands and Housing             shs.9.1 billion
            Department of Science and Technology shs.8.9 billion
            Ministry of Education                            shs.6.2 billion
            Ministry of ICT                                      shs.2.9 billion
            Ministry of Industrialization                  shs.2.7 billion
            Department of Tourism                          shs.2.6 billion
            Department of Livestock                        shs.2.4 billion
            Department of Culture                            shs.1.2 billion
            Department of Fisheries                          shs.1.2 billion
The totals add up to shs.196 billion and the balance used up for payment of the syndicated loan, commissions and taxes.

Provision of the breakdown on the amounts allocated to the various ministries and state departments is perhaps a job well done but now what the Treasury top honchos have failed to give is the subsequent itemization of the specific projects that have been financed by the Eurobond. We need to be shown which projects have been established and not being treated to empty rhetoric. If the funds from the Eurobond proceeds were plainly given to ministries and state departments without specifying which projects to establish, the funds may have ended up as part of the normal budgetary allocation to the ministries and departments.

What really irks me is how this issue of not only national concern but also international concern is being politicized. Politicians from both the ruling coalition and the opposition are seeking to gain political mileage with the Eurobond issue. However, politicians who happen to be career sycophants from the Jubilee side put up arguments that makes them to come out as automatons and simpletons who have no goodwill for Kenya at heart. Calling for a press conference by Members of Parliament to defend matters that are to be defended by the Executive jeopardizes and subsequently weakens the oversight role of Parliament. As a matter of fact, MPs led by Aden Duale  and Prof. Kindiki Kithure directed their exasperation in the form of filibusters at the Opposition chief Raila Odinga on the perception that the former premier is unhappy that proceeds raised from the Eurobond were not used to fund projects that were began by him.

This is a skewed way of reasoning. Look, one of the unseen roles that the government of the day needs to execute is the provision of continuity in government. If indeed the Jubilee-led administration was to avoid cases such as the cash crunch it could have made an initiative to complete the projects that were started by the previous government instead of coming up with new projects which need extended funding hence competing intensely for the available scarce resources. These projects regardless of who was their initiator seek to benefit Kenyans and improve the country’s economy but it is something that Duale and his ilk of backslappers seem not to understand but instead they have chosen to fantasize on it with the aim of politically decapitating Raila Odinga.

Whether one belongs to the opposition or the government-side of the political divide, national economic issues are to be devoid of politics and it is because of cheap politicking that Kenya’s Eurobond value has begun to slump at the Irish Stock Exchange. So if those who belong to the opposition raise questions about expenditure, it is the Executive to come out and defend their record by providing substantial proof. But because of pseudo-intellectualism we choose to treat those who are far from the centre of power as mere noisemakers and economic saboteurs. Citizens should forever be raising and asking hard questions on government expenditure because economic hardships know not which side of the political divide you belong to and which political ideology you subscribe to. In any case, the allegations by Odinga need to be taken seriously if past whistle blowing events are to go by. With precise hind thought, he is the one who unearthed the dubious deals of the legendary Anglo-Leasing scam, the flamboyant Artur brothers and more recently the National Youth Service scandal in which he was initially dismissed but later on the truth revealed itself. 

Political sideshows that we are being treated to are pure fantasies with politicians seeking to edge out each other politically. At the end of the day, there would be deviation from what we need to know; the particulars of how the Eurobond proceeds were used. Whether Raila Odinga is arrested to substantiate his allegations or whether Henry Rotich the Cabinet Secretary in charge of the National Treasury resigns, to me is a drop of water in the ocean. My desire is to see proper accountability of funds because I am a taxpayer. The people’s power should reign supreme because we the citizens rejoice under economic prosperity or suffer under economic turbulence.

Tuesday, 8 December 2015

Reviewing The Sino-Africa Economic Relationship

In the 21st century, two significant economic happenstances are bound to occur. Firstly, the reality that the Red Dragon will eventually be the world’s leading economic power and magnet is taking shape a bit rapidly. Secondly, the actuality that Africa will be a key player in the world’s politico-economic front is no longer something that can be deemed as a fantasy. It is slowly building up albeit a myriad of challenges that are bred internally within the continent and transmitted externally from the developed nations.

The emergence of China as an economic powerhouse in the world is one of the fascinating economic stories in the globe because her growth and development has followed a trajectory that was once thought of as economically non-friendly. This trajectory has been common among most of the East Asian nations and the Asian Tigers whereby at the time of their economic take-off and subsequent economic stabilization, democracy has been practiced selectively with so much relativism and less absolutism. 

As a consequence of her economic transmogrification, China in her bid to topple the United States of America as the world’s superpower economically, she has been able to engineer some development funds in the form of financial aid and assistance to various countries in Africa. This is one way in which the Chinese are using to make their presence felt on the African continent in the name of fostering the economic cooperation between China and Africa.

Last week, there was a conference known as the Forum on China-Africa Cooperation held in South Africa and attended by African leaders and the Chinese president, Xi Jinping. In this economic forum, the Red Dragon pledged the following: to inject $60 billion for financing development projects, to cancel the existing debts that have zero interest rates and to boost agriculture through the development of a 3-year strategic plan. 

The afore-mentioned economic pledges are clothes of the same colour but have a different texture of fabric. Why? Because they are all financial aids, broken down into several specifics. With the external financial aid and assistance comes the bone of contention; do the developing countries especially in Africa need the external financial aid? This has been and it is still a subject that is subject to intellectual treatise depending on the school of thought that one belongs to and which economic development ideology and philosophy that one subscribes to.

I belong to a school of thought that fashions and advocates for an internally-induced economic growth and development that is firmly anchored on the internally-first and externally-last model. Concomitantly with this school of thought, I strongly cherish the economic ideology and philosophy which emphasizes that robust economic growth and development in any given country or region is an absolute process whose occurrence is pegged on the initiative taken by the indigenous people. In other words, I abhor the enthymeme that developing countries need external funding to accelerate their rate of economic growth and development.

One of the sweeteners that China offers in their economic cooperation with the African nations is the principle of non-interference in political matters and internal affairs of these countries. This is an economic revolutionary idea that has proselytized many African political leaders to join the bandwagon of the Chinese mandarins. In any case, who wants to be given loans that are subject to conditionalites that threaten the socio-political reorganization of a country the way the traditional funders from the Western world have done for ages? This is a blind-folding process.

How can you give loans and development aid to countries that are suffering from the vagaries of institutional malaise. China’s endearment to Africa is largely to superimpose its perceived superpower oneirism over the USA. If indeed the mandarins have the need to transform Africa then they should do away with this laid-back approach and demand for the establishment of effective institutions that promote economic development. I have no problem whatsoever with the authoritative regimes as long as they propagate zero-tolerance against corruption, improve people’s living standards and respect human rights. The corrupt in China are sentenced to death and a similar approach can be replicated in Africa among countries that have economic cooperation with her. 

The emergence and resurgence of the Red Dragon as the world’s second largest economy ostensibly assumed the internally-induced trajectory of growth and development especially after the death of Mao Zedong, popularly known as the Chairman. Chairman Mao was the proponent of the Great Leap Forward and the subsequent Cultural Revolution that originally were meant to breed prosperity in China but largely led to a tatterdemalion economy. His death was thus a critical juncture that enhanced a spirit for the need of economic renewal to better the lives of the Chinese people.

The economic syndrome that most African nations are suffering from is similar to that which afflicted China especially in the 1960s and 1970s. Hence, two leading economists, Prof. Loren Brandt of the University of Toronto and Prof. Thomas G. Rowski of the University of Pittsburgh identified three sources of productivity stagnation and rampant inefficiency that characterized China’s planned economy before its adoption of the mixed economic model. One, the prevalence of noneconomic policy objectives. Secondly, weak institutions and thirdly poor incentives. One funny thing is that these three factors are embedded in the economic systems of majority of the African countries which seem to have adopted a mixed economic model. This is the contradiction; these factors were seen in the pre-developed China that thrived on a planned economy and they are vibrant in a pre-developed Africa that has adopted a mixed economy.

For China to ensure that African nations play catch-up to economic growth and development, the Chinese need to preach the gospel of economic restructuring that is based on strong institutions and effective incentivization. In any case, the Chinese are propagating foolhardy economics by giving finances to most countries that are victims of weak institutions and poor incentives. 

The Sino-Africa economic cooperation is set to be victimized by two issues; China’s slowing economy and the use of Chinese firms and labor especially when carrying out the infrastructural development projects. Acute economic dependence cultivates a ground that is prone to intense exogenous shocks. The slackening of the Chinese economy implies that the economic growth rates of the African countries will be wholly jeopardized. The resolve by the Chinese to use their own firms and labor is an economic manacle that is bound to stagnate the development of Africa’s firms and human capital.

The above two have an implication that Africa’s economic prosperity is held at ransom by the Chinese. If China was to employ the services of the African firms and labor, then this capacity-building approach could enhance an African-driven economic approach. However, the use of Chinese firms and labor is a strategy meant to enhance Africa’s economic dependence on China for eternity. For Africa to emerge as a new economic frontier, it is upon Africans to own this dream and reduce the reliance on external aid. Even China’s economic development was partly due to the withdrawal of the East Bloc technical aid.