Managing Africa’s ticking youth time bomb – the case from Kenya

In June 2024 Kenya’s youth, thousands of Gen-Z, did something extraordinary, they had enough. They came out onto the streets demanding the government drop a punitive tax bill, the finance bill, and tackle corruption and waste in government spending instead. In events, that shocked Kenya and the world the police response to the protests was heavy handed and tragic resulting in multiple fatalities, and protestors stormed parliament. Despite calling the out the army, President Ruto had to concede and withdrew the finance bill and later fired his cabinet, but the young protestors have not stopped demanding fundamental changes in the way their government is run.

The events in Kenya are not unique, Africa has seen youth revolts in North Africa (the Arab spring), Nigeria (End SARS) and in South Africa (Fees Must Fall). More importantly, the underlying conditions that led to the protests exist across the continent. A young and growing population, frustrated by economies that offer no jobs, no prospects, run by unresponsive and corrupt governments, with old men in charge. Many of these governments, are heavily indebted, having borrowed irresponsibly when money was cheap, and are now reliant on the IMF and others for support. The conditions of that support require more tax revenue, resulting in punitive taxes that over burden already struggling people.

The Finance Bill in Kenya was the trigger that set off the time bomb of disaffected youth without realistic prospects, who are angry at a government that will not listen and is wastefully corrupt and opulent while they struggle. Where to next, how do we avoid this happening again, in a way those young people don’t loose faith in democracy and turn to more radical and destructive.

Ironically the answer to the ticking time-bomb, lies in the grievances that drove it. African governments need to focus on developing and driving a radical agenda for growth that creates jobs and opportunities. As well as evolving systems of government to be more democratic, more engaging and more accountable.

Radical growth

Africa needs growth and jobs. If we are to ensure that African citizens can have dignified lives, we need to create jobs, livelihoods and incomes. As I wrote in a previous post, with jobs individuals and households have incomes, the ability to pay for housing, healthcare, recreation and invest in the future. In short with jobs come agency and dignity both for people and the nation, and dignity is at the core of any viable definition of development.

African governments must be laser focused on creating the growth and jobs needed if any significant headway is to be made. This means

Working with the private sector to develop a genuine growth agenda for indigenous self-reinforcing growth.
Developing a tax reform agenda that is aimed at fostering growth not extracting punitive taxes from citizens
Taking our own climate future into our own hands rather than waiting on the developed world to make the right choices.
Putting aside our differences as a continent to make the Africa Continental Free Trade Area work, so that we can build mutual prosperity reliant on our continent and not the generosity or good fortune of others.
Smart investment in key industry and value chains, based capacity, demand and growth potential rather than the latest development fad cooked up in Brussels, London or Washington.
Investing in the multiplier’s future growth, education, science, technology, culture and the arts.

These are not new ideas, or revolutionary ones. However, doing them well requires African governments to shake off their normal way of doing things which has not worked for the 70 years and focus. Not on what will enrich them as individuals or what will please donors, but what will create jobs and growth.

Engagement – responsive democracy

Our systems of governance are not fit for purpose. Most of them are jerry rigged versions of whatever colonial system had been left to us. Most post-independence leaders were focused on maintaining control of fragile post-colonial states, and thus centralised power. The democratic resurgence of the post-cold war era, focused largely on holding elections, rather than creating democratic systems that engaged with citizens and were responsive to their needs.

It is now critical that Africa create governance systems that engage and involve everyone, especially, young people who feel disenfranchised. At the core of this is three critical things.

African governments must communicate. Not just when they have made decision, but their decision-making process. Tell people what the issue or choice is, the trade offs, and the options. When they intend to do some thing and when it has its impacts. Too much policy and government action on the continent is a surprise. With the rationale a complete mystery and its impacts unexplained. Kenya’s Finance Bill was never properly explained to its populace, the thinking behind it was locked in the heads of the National Treasury’s senior directors. Thus, it is no surprise that Kenyans rejected a bill that was going to make them worse off without it being explained to them why.

African governments must engage with their citizens as a matter of course, in the conception, development and implementation of policy. Thus its time for governments to consider ideas such as participatory budgeting, where people are intimately involved in budget conception and development ensuring that money is spent on citizens priorities.

Strengthening democracy and accountability. It is clear that voting is not enough. That our current systems of democracy, does not properly hold our leaders to account and moreover the incentives inherent in the system are skewed towards people getting into to politics and leadership for the wrong reasons.

A wake-up call

The Gen-z protests in Kenya are both a wake-up call and a reason for hope. A wake up call in that its clear that young African’s do not have unlimited tolerance for hopeless circumstances. African governments must be more engaged and responsive, and most importantly focus on the growth and jobs that our young people desperately want and need.

The protests are also a reason for hope. The young Kenyans who have come out to march and braved police brutality, are not looking to burn the system down. Rather they were looking to make it work, to make it accountable, to reset our governance processes to so that they work to ensure dignity for all rather than wealth for a few.

African governments must be proactive, and respond to their young people, or they may lose patience, and rather than make the system work, choose to tear it all down.

Africa needs private sector growth and jobs.

If there is one thing that African economies are not good at, it is fostering the growth of the private sector and creating jobs. This problem, more than debt, more than global geopolitics, more than infrastructure deficits is holding the continent back.

As the last two centuries have shown in Europe, America and Asia, the greatest poverty reduction strategy is jobs. People getting regular incomes spend creating demand in the economy and driving growth. They save creating a pool of savings (something else Africa struggles to do) and that is invested in funding the growth fuelled by the growing demand. Africa needs jobs, and to get those we need a growing private sector. On top of this, private sector fuelled growth is indigenous, it is not reliant on cheap western credit, or Chinese largesse.

However, Africa does not benefit from this self-perpetuating driver of prosperity and poverty reduction. Wage employment in sub-Saharan Africa has barely risen 2% since 1991.

Figure 1: Wage and salaried workers, total (% of total employment) (modelled ILO estimate) – Sub-Saharan Africa | Data (worldbank.org)

In fact, we have become so bad at it we have fetishised entrepreneurship, micro-enterprise, and self-employment. Encouraging young people to become entrepreneurs, to hustle, celebrating those that make it while not acknowledging the high failure rates that they experience (estimates suggest that 70-80% of African startups fail within their first five years). More so, the policy makers, multilaterals and foundations that lead the entrepreneur and MSME cheerleading fail to acknowledge that the high cost of credit and capital that fundamentally undermines those same entrepreneurs and businesses is driven by the fact that we have low savings and thus low levels of native capital available for investment. More than that, everyone trying to be entrepreneur, whether they want to or not, does the wider economy little good.

To rekindle our private sector and create jobs. We must create the conditions in which businesses can thrive and hire more people. Today African businesses are strangled by an ever-growing web of regulations, a policy environment that is unpredictable and disconnected from their everyday realities. Africa needs to create its own prosperity, drive its own growth and for that we need jobs, and our policies need to be geared towards that outcome.

Regulation that works not hinders

Regulation is necessary and it is not evil. Standards agencies and food authorities ensure that the food sold to us is safe to eat, medical boards and bar associations ensure that our doctors are not quacks and lawyers are not hacks.

A well-regulated economy is a positive for the private sector, it ensures stability, enables competition by levelling the playing and most importantly protects citizens. Africa, in general does not have good regulatory systems, and as a result the private sector is hampered by old regulations, poorly written regulations, contradictory regulations and sometimes no regulations. What Africa needs is regulation that works and getting there will require regulatory reform that does three critical things, expand capacity, updates and Africanises regulations.

Capacity – many African regulatory agencies are understaffed, under resourced and underfunded and struggle to enforce their mandates. Frustrating businesses that need licenses, permits, approvals, certificates, standards etc. and endangering the public. Regulations are a necessary public service and the agencies in charge of delivering that service should have the capacity to deliver that.
Updates – a lot of regulation and legislation on the continent is old, dating back to decades some to the colonial era. To operate modern businesses and attract investment you need modern regulations that cater for modern world. Without that you get either chaos or stagnation. For instance, Kenya’s building code dates to colonial Kenya of the 1950’s it does not account for modern construction methods, or modern ways of covering up shoddy work. This has led to a chaotic construction sector dependent on the morals on the developer in question. Leading to a country of modern buildings side by side with collapsing buildings that kill people. African governments need to take a step back, assess their critical regulations and bring them up to date.
Africanisation – we have a bad habit of adopting regulatory regimes from another part of the world, because it is ‘global best practice’ but never updating and adapting them for the African context. Thus, we end up with regulations that we don’t really understand, that are not fit for the African purpose. It is not enough to adopt global best practice, but African governments must ensure that they adapted to and fit their context.

Coherent predictable policy

I have written about this previously and will keep writing about it. The way most African governments make and implement policy lacks coherence and ends up creating a disjointed and unpredictable policy landscape. Sectors (and their ministerial departments) do not exist in isolation, policy in one sector must be connected to another. A packet of biscuits, that you find on the shelf of a shop utilises products from different sectors, wheat from agriculture, milled flour, and sugar in the manufacturing sector, it is transported in trucks on roads from the transport sector and sold in a shop from the trade sector. It is very likely that the farmer, manufacturer, or shop owner has utilised credit from a bank or insurance from the financial sector. If policy is made in any of those sectors it can affect the others and the costs of doing business, and when done so in isolation, the unfortunate biscuit manufacturer may find their business adversely affected by a choice made without the consequences on their sector in mind.

Coherent, predictable policy is the bedrock of a growth environment for the private sector. We must keep demanding this from African governments until it becomes a reality.

Public Private Engagement, Accountability and Action.

One of the key lessons I take from the rise of the Asian tigers is the constant dialogue and collaboration between the public and private sector. Taiwan’s semi conductor industry, now the most important in the world would never have become a reality unless the industry and government were constantly talking and acting in pursuit of shared goals.

In Africa much the government and private sector have either an adversarial reaction where they are fighting each other or an ambivalent one where they talk but don’t listen. Significant sustained private sector and job growth requires genuine engagement and understanding between the public and private sectors.

Government and private sector must not only talk to each other but listen to each other. This requires both sides to recognise and understand that the motivations and goals of the other are legitimate and beneficial. Once that understanding is in place then shared goals can be developed. The growth of the private sector is an inherent goal of business, but it must also be one of government, tied to that the government goals of job growth and key issues like worker conditions, training and education, environmental sustainably must also be private sector goals.

When an honest dialogue and shared goals are established then, plans with key actions and milestones can be developed and the public and private sectors can hold each other accountable to those plans, and thus take real action.

Right now, Africa has an overwhelming number of vision 2030/35/40/60s etc. strategic plans, manifesto’s and blueprints. All of them developed largely by public sector and highly paid consultants with token input from the private sector. The core of their ineffectiveness stems from the fact that these documents are disconnected from and largely meaningless citizens and private sector they are being enacted on. Honest dialogue to establish shared goals and a shared plan will lead to real action and accountability because both the public and private sectors have something to gain from effective implementation.

So long as we continue the ambivalent and adversarial relationship between the public and private sectors, their engagement shall continue to be ineffective.

Jobs and growth

Without private sector growth and jobs, much of our development discourse is meaningless. With jobs come incomes, savings, investment, demand, and tax revenue. With jobs individuals and households have incomes, the ability to pay for housing, healthcare, recreation and invest in the future. In short with jobs come agency and dignity both for people and the nation, and dignity is at the core of my definition of development.

Without private sector growth and jobs, we will be stuck in our perennial cycle of economic growth that is meaningless to the vast majority of African’s, followed by debt crises as African governments attempts to invest and spark growth with debt (on the advice of consultants or multilaterals) falls flat yet again.

If we want indigenous self reinforcing growth, that enables people to live dignified lives out of poverty, then the lesson of the industrial revolution and rise of Asia is that you need a growing private sector and jobs. Our governments need to get serious about providing an environment that can foster that and collaborating with the private sector to create a shared vision for the future with jobs at its heart that both the public and private sector have a stake in achieving.

Bad policy is bad business: Reforming the African Business Environment

African economic policy does not have much wiggle room at the moment. The two policy levers that are most commonly used, tax policy (new taxes or tax breaks) and fiscal policy (spending money on things) cannot be used. We have no money so we can’t give tax breaks and we have reached our credit limits so we cannot borrow or spend more. There is no commodities boom to fill our coffers and there is no China riding to the rescue with loans and aid.

So, what can we do? How do we drive the investment and job creation our continent desperately needs without using tax policy or spending?

I think African policy makers have been lazy, or at the very unimaginative and inattentive. Economic policy encompasses a large universe of policies, laws and regulations that govern how the economy functions, how different entities interact with each other, what they are allowed to and what they aren’t, and even how they fail. How all of this is applied, how responsive regulatory structures are to a changing world and how often it changes, all contribute not just to economic policy but to the business environment. Creating a conducive business environment for MSMEs and large businesses is critical to having businesses that invest and create the jobs that we need.

I define a conducive business environment as one that gives businesses, investors and entrepreneurs a stable and secure operating environment, which puts the onus on them to grow rather than government to subsidize the economy. An environment that doesn’t let failure be a death sentence but an opportunity to bounce back. Creating this environment on the continent would help take our private sector from being resilient to being dynamic.

Predictability and stability

Businesses and investors think about today, tomorrow, next year, three years from now and a decade from now. In other words, businesses have plans. They plan to grow, and that growth needs investment, expansion and people (jobs) to make it happen.

The thing that businesses and investors crave is predictability and stability of the business environment. If a business or investor can understand what their operating environment will look like, they can make and implement their growth plans, invest in expansion and employment. Whether you are a motorcycle rider who wants to grow your income or big business making billions, the ability to plan for the future is critical.

African governments are notoriously bad at providing predictability and stability. Policy and regulatory changes seemingly come out nowhere, policies are suddenly reversed without warning, or changes are promised and soon forgotten about. A great example of this tax policy in East Africa. A recent IMF report showed that countries in the East African Community (EAC) have, since 1988 made an average of 13 changes to tax policy and law every year, that’s 1,845 changes since 1988. When on top of this you add unforeseen charges to other policies, laws and regulations it makes the African operating environment an ever-changing mess.

What governments need to do is simple, make multiyear (e.g. 3 year+) plans and communicate those plans as I have written about it before, good communication is good policy. Clearly articulating the intent of policy, what it is going to do, how it is going to work and when it will happen, may seem like policy 101 but it’s astounding how many times this has not happened. If you as a business or investor know what’s coming you can plan for it, integrate into your plans so that when it happens it’s not disruptive but wholly expected.

Connect the dots.

Policy, legislation and regulation do not exist in isolation. What happens in one sector, ministry or agency can have significant impacts on another. For example, if governments want to domesticate value chains and export more their trade policy, industrial policy, employment policy, financial sector policy must speak to each other in order to be truly effective.

Unfortunately, the situation we get most of the time is that policy in one area is made in isolation from another despite them being mutually reinforcing. Thus, businesses and investors are confronted by, at best disjointed, at worst contradictory policy that isn’t worth the paper it’s written on. For business and investors this creates confusion and uncertainty.

What is required is the for the policy development process to be inclusive of others in the public sector and those in the private sector who could have influence over it. For instance, if a government wants people to consume locally produced bread it must talk to the wheat farmers to understand how to increase production, to millers to understand how to increase wheat flour production, to bakeries to understand how to increase production of bread that people actually want. Then it must align the policy of the agriculture ministry, the ministry of industry, and the ministry of finance to make sure the interventions needed at the various stages of the value chain are aligned and mutually reinforcing. If not, the government will buy fertilizer for wheat farmers that isn’t suitable for them, the millers may have access to loans for expansion but no wheat to actually produce with and the bakeries will use the tax breaks on domestically produced bread to sell unfinished imported bread that just needs a few minutes in the oven.

While the example may seem preposterous, it’s an all too familiar tale on the continent. If governments don’t connect the dots, the impact of policy is like swimming upstream, lots of effort expended for very limited outcome.

Better bankruptcies

Walt Disney, Henry Ford, Heinz, Marvel, American Airlines, and General Motors. These entrepreneurs and companies have two things in common, they are immensely successful, and, at some point they had all declared bankruptcy.

One of America’s greatest innovations is bankruptcy protection. Instead treating bankruptcy as a shameful thing that killed the business and stained the reputation of its owners. In America bankruptcy is a chance for a reset or to start again. Companies that go bankrupt get protection, space and time to sort out their issues and emerge leaner and meaner. People who declare bankruptcy have the chance to have their debts discharged and to start again.

In Africa, we still treat bankruptcy like Europe did a century ago, as a disaster. People who go bankrupt are saddled with odious debts, companies that go bankrupt are broken up, sold off by creditors. It’s time to change this thinking, as America shows giving people and companies a second chance fosters innovation, it encourages entrepreneurs to take bold leaps and it enables people and businesses to bounce back from adversity quickly and effectively. African businesses experience a lot of headwinds, many of them stemming from forces (and regions) outside their control, changing insolvency and bankruptcy laws to be more American, may be the catalyst that enables African businesses to grow in the good times and innovate in the bad.

Bad policy is bad business.

It is incredibly frustrating watching African governments repeatedly miss the opportunity to drive growth without having to spend money or give tax breaks. There is so much that could be done to give the private sector the predictability and stability it craves to enable planning, investment and growth. To link relevant policy areas and reinforce the growth prospects of key sectors of the economy through mutually supporting government action. Or to simply help businesses understand what you are trying to do, and work with that in mind.

Instead, we have fostered uncertainty, and an adversarial relationship between governments and the private sector, which, in turn leaves the private sector surviving rather than thriving, and when businesses cannot survive, they are picked apart like a with a carcass as part of the bankruptcy process.

Today the reality is, that while Africa would like to and needs to spend money and use tax policy to drive key development goals, we don’t have the fiscal room. The only way to create that room is for the private sector to grow and pay more taxes, and though it may seem like it, this is not a chicken and egg situation. How policy is crafted, communicated, and implemented has a real and significant influence on how companies grow and where investors decide to put their money.

We must do better at creating the environments in which businesses thrive and investors want to come to. Otherwise, an underperforming private sector will continue to stagnate, and our policy makers will be wasting air, money and perfectly good paper on strategies and plans that will fail.

2024 Policy in Africa – perspectives & predictions

2023 was tough. Inflation and currency depreciation causing a cost-of-living crisis across the continent. Debt crises, defaults and IMF programs that squeezed African governments who in turn squeezed citizens with taxes. Droughts and floods. Coups in the Sahel. Civil conflict in the horn of Africa. Despite these challenges African societies, and economies showed extraordinary resilience.

However, resilience while important is only part of what we want to see in Africa’s socio-economic story. We want dynamism, and growth as well, and tough times can be the perfect incubator of that. 2024 will be tough, looking at the year ahead the pressures we have already been experiencing will remain and new ones will emerge. To build greater resilience, drive growth and incubate dynamism we need good foresight from our policy makers and good policy, a lot to ask, but we live in hope.

1. Debt, the IMF, and Delivering Growth

Debt distress was a key concern of 2023 with Zambia, Ghana and Ethiopia all defaulting on bond repayments. A number of other African countries continue to experience debt distress having taken on too much debt, which was not used for productive purposes, coupled with a strong dollar that has made those debts more expensive. Many countries have turned to the IMF for help which has come with structural adjustment conditionalities, increasing tax revenues, selling public assets, and slimming down public services. As our experiences in the 1990’s showed the neoliberal policies imposed by the IMF rarely have the effect they are intended to. Which means economic policy must focus on two things.

First (as I have written about in more detail here), Africa must get out of the IMF straitjacket, doing that will require prudence in spending by cutting spending on unnecessary and wasteful things. And prudent tax reform that looks to gain more from natural resources, target corporate tax avoidance and grow the tax base. The current IMF approach of simply squeezing existing narrow African tax bases harder is choking African economies to fund the debt repayment while services and public investment suffer.

Second, using the policy levers that are under IMF conditionalities. Tax and spending policy get most of the attention when it comes to economic policy but there is much more that impacts the costs and ease of doing business for small and large business. Makes it easier for African businesses to trade and do business across borders, unlocks native capital for investment. Creating linked economic policy where labour policy, agricultural policy, industrial policy, tech policy, and financial services policy are interlinked and mutually supportive, which in turn will stimulate and support the growth of the private sector.

2. Painful medicine and hard recoveries

Of particular interest to me in 2024 will be the African countries that chose in 2023 to administer painful medicine on their economies to stop the malaise of recent years and set a new path to prosperity. In Kenya and Nigeria, new presidents facing dire economies chose to do this. Both President Tinubu of Nigeria and President Ruto of Kenya have done away with subsidies on fuel and food, looked reinvest and kickstart their productive sectors (agriculture in Kenya and Petroleum in Nigeria), allowed significant currency depreciations that fuelled inflation. Kenya (advised by the IMF) has gone a step further and imposed painful tax increases (with more planned in 2024), with the intent of keeping Kenya out of debt default and self-funding development. Though interestingly both countries have found themselves unable to make spending cuts.

2024 will be make or break for both countries. In 2024 the populations of both countries will need to see, at least, the beginning of a recovery. Otherwise, discontent may deepen, and the politics may get nasty as it did during Kenya’s opposition protests last year. 2024 will show if the tough medicine is working and give other African states confidence in following Kenya and Nigeria’s tough approach or if unsuccessful reason to explore alternatives.

3. The Dollar and the Donald

After World War 2 there was a saying in economics. If the US sneezes the rest of the world catches a cold. In 2023 the US Federal reserve raised interest rates steeply to combat high inflation. These rate increases had a number of negative consequences for the continent. It made the Dollar stronger against African currencies fuelling an inflation crisis as imports from fuel to food got more expensive and made foreign currency denominated debt repayments more expensive and painful. In addition, it caused investors to pull funds from Africa as it made more sense to invest in US bonds with high returns. In 2024 the US Federal Reserve has indicated that it will start making interest rate cuts as inflation is under control. This should ease pressure on African currencies and help bring inflation in Africa under control. However, if the US doesn’t cut rates as fast or as far as expected the impact won’t be as great as hoped for, or even paused or reversed if US inflation returns. African policy makers, especially central bankers and finance ministers should be developing scenarios for 2024, looking at what happens to their economies under different US interest rate and Dollar scenarios and the policy responses they can put in place to take advantage or mitigate risks.

In 2024 more than 2 billion voters in 50 countries (including 18 in Africa) will be undergoing elections. The one overshadowing them all is the US election. Joe Biden has been a traditional US President when it comes to Africa, committing to AGOA, various aid and investment programs, and committing US resources to anti-terror/insurgency operations. If he wins re-election, we can expect more of the same. If Donald Trump returns, we can expect the return of his hands off (or disinterested) Africa policy which will see even greater interaction and influence from other non-traditional (US, EU, UK) powers on the continent. With trump in the white house expect China, India, Russia, Turkey the Middle Eastern Countries and Japan and Brazil to have more active Africa strategies. In addition, Trump will upend wider US economic and foreign policy as he did in 2016 creating not only uproar in the US but economic and geopolitical implications for the rest of the world. Again, having seen one Trump presidency, African policy makers must plan for that scenario, what do we need to protect against, and how can we take advantage of global context where US attention is either at home or ‘non-African’ parts of the world.

4. The Black Swan

A black swan event is an unexpected and unforeseen event that has an enormous impact on the world. In 2020-21 we had the coronavirus pandemic. In 2022 Russia invaded Ukraine and in 2023 we got a global inflation crisis and new war in the Middle East. All of these have had significant socio-economic and political impacts on Africa and the world.

We are all praying for a (comparatively) quiet 2024, but if the last few years are any indication there will be something in 2024, we do not know what it will be but there will be something. Maintaining some flexibility and adaptability in policy approaches and plans are key if African countries are to continue to navigate these storms.

5. Climate more hot air or action?

Over the last couple of years Africa has made a lot of noise on the global stage about climate change and had some victories such as the inclusion of a loss and damage fund at CoP-27 in Egypt, the development of South Africa’s Just Energy Transition Plan (JETP) and the 2023 Africa Climate Summit in Nairobi, the first of its kind that saw the first proper articulation of African Climate ambitions in the Nairobi Declaration.

In 2024 we must see progress and some action. Can South Africa’s JETP get off the ground and help abate the energy crisis or will it just be another talking point. Will the loss and damage fund get some honest to God funding, will some of the ambitions in the Nairobi declaration be on the table at CoP-29? If all we see is hot air at diplomatic discussions, the hot air of climate change will continue to disproportionally impact Africa, the continent least responsible for the problem.

6. More continental trade (hopefully)

Trading under the Africa Continental Free Trade Area Agreement began on 1 January 2021. As of February 2022, eight countries representing the five regions of the continent – Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia – participated in the AfCFTA’s Guided Trade Initiative, which sought to facilitate trade among interested states that met the minimum requirements for trade, under the Agreement. The products earmarked for trade were limited and intended to lay the groundwork for future expansion. In 2024 our fingers are crossed that that expansion will come to fruition. The goal of policy makers and the ACFTA secretariat must be the operationalisation of key protocols and one of the aspects I’m most excited about the Pan African Payments and Settlement System PAPSS enabling countries to trade and pay for services across borders in local currencies rather than expensive currencies. Hopefully, African leaders truly get behind this agenda.

2024 tough but not disastrous

2024 will be a tough year for Africa, but it should not be disastrous (black swan events aside). If policy makers can identify and plan for various scenarios, we can better control the impact of global events and policy shifts on the continent. If policy makers can think outside the IMF box on how to increase revenues without hurting citizens and businesses as well as back the big bold policy initiatives on climate and trade, we could see the foundations laid for greater prosperity in the future.

2024 will be tough but manageable if our leaders and policy makers can focus……

Kickstarting intra-African trade & industrialisation through regional value chains

I am a pan-Africanist, firmly of the belief that Africa is stronger together. That when acting in concert we can accelerate socio-economic development, and make our voice heard and matter on the international stage in an increasingly fragmented world.

However, first we must get better at working together, particularly when it comes to economic and trade policy. The selfishness with which we guard parochial economic interests, is at odds with the regional and pan African institutions we have established to foster the continents stated ambitions on trade and development.

Thus, as we try to reach the extraordinary ambition of the ACFTA that envisions a pan-African trade bloc, it is worth taking a leaf from beginnings of the European Union. Starting small and building towards a massive ambition. The EU did not start with a big bang, it started as a steel and coal trading community, between Germany, France, Italy, the Netherlands, Belgium and Luxembourg. Creating a win-win situation that convinced the politicians, bureaucrats, and people to go all in.

The ACFTA can play this role, fostering strategic cooperation using specifically identified regional value chains. Identifying goods that currently do or have the potential to use inputs from across a region and investing in that potential to create positive incomes and linkages for the various countries involved. In doing so, it can lay the foundation and support for pan-African trade and collaborative policy making.

Fostering Strategic Cooperation

I am Kenyan, a member state of the East African Community (EAC), regularly referred to as Africa’s most integrated Regional Economic Community. With a common trade area, coupled with unprecedented cooperation in a multitude of policy areas, with a stated ambition of becoming a political federation. Unfortunately, the reality is far from the ambition. The common trade area is subject to the self-interest of the nation sates, and their own political economic lobbies. Thus in recent years we have been treated to Tanzania burning Kenyan chicks at the border, Kenya banning Ugandan milk, Uganda and Rwanda closing their mutual borders. Undermining the laws and institutions of the EAC.

If the ambitions of the EAC cannot be achieved in East Africa where there is decades of history of cross border collaboration, what makes us think that it can happen across the continent. Far from being a pessimist, I think the ambition is still valid. That we can foster cooperation needed, by investing in and building value chains.

Why value chains

The value chain of a product is everything that goes into making it and getting it to market. For example, if you look at the value chain of a bottle of beer it starts with the inputs, in this case the farmers who grow the barley, hops, and sugar, the chemists who grow the yeast, the glass maker who makes the bottle, the company that makes the bottle caps. It all comes together in manufacturing process at the brewery where the beer is made, put in a bottle and capped. Its then sold to a distributor, put on a truck, and delivered, the distributor then sells it to an establishment who sells it to a customer. A beer is a comparatively simple product when compared to a car, or solar panels or a smartphone, but whatever the product, the inputs come from a variety of places to be put together in a complex manufacturing process and distributed along a complex logistics chain.

Products with the right value chains require a range of inputs, which can be sourced from different countries and industries within a region. In that value chain, can be built a coalition of the willing among the businesses that supply inputs, those that manufacture the goods and those that distribute and sell those products. That coalition of the willing, the participants in the value chain can create the political-economic support within the individual countries necessary to sustain broader political support for open trade.

As value chains gain success there will be proof and willingness to expand the concept, for people to stop seeing buy Kenya build Kenya, or made in SA, but rather buy Africa, build Africa and proudly African. One value chain at a time, from beer, to motorbikes, to fertiliser to solar panels, we can build economic, logistical, and political relationships that can provide a foundation for Africa to think and dream strategically. To realise the dream of using the raw materials that all to often leave the continent should stay in Africa and make the critical technologies of today and tomorrow in Africa.

Building complexity

Beyond the politics, value chains will allow Africa to build the large complex corporations that are at the centre of economic development. Since independence African economies have largely been dependent on small enterprises and smallholder farming. They have proven to be extraordinarily resilient, adaptable, and creative, thriving in booms, surviving in recessions and making do in everything in between.

However, while small may be resilient it is not transformative. As David Pilling points out in a recent article “Large complex companies, drive productivity by organising workers, building on their specialisation, and pulling in vast resources to create economies of scale.” The successes we see in China, South-East Asia and Latin America have all built large complex industrial networks, as the foundation for industrialisation and sustained economic growth.

Deliberately focusing policy efforts on building regional value chains will encourage the set-up and growth of the large complex businesses needed to coordinate, fund, and use these value chains. Which in turn will need attendant goods and services like finance, marketing, ICT among others, creating economic ecosystems. Eventually with time, like we have seen in Asia these African businesses can provide a foundation for growth and become players on the global stage.

Conclusion

Intra-African or pan-African trade and industrialisation is a big dream that could spur the industrialisation of the continent. Which is critical to create the millions of jobs we need and sophisticated companies and services that will keep wealth on the continent.

But it won’t happen overnight, nor will it happen automatically. African governments, industries and multilateral institutions must be deliberate. Using carefully identified products to build value chains of goods, money, trust, political and commercial interests, will give us the basis for pan African industrial networks. If Africa is ever to realise the dreams of the ACFTA, or Vision 2063, if we are to realise the dreams of African built phones, cars, power plants creating these value chains is critical.

Liberating Africa from the IMF Debt-Trap

There were times when there riots in Africa, demonstrations against the IMF because of the policy advice they were giving, the conditionalities they were imposing and the difficulties that arose out of the implementation of those conditionalities. – Jakaya Kikwete, former President of Tanzania

I am a child of the 1990s, I grew up in Kenya when the economy was crap, and the politics was hot. Something I used to hear a lot about on the news at the time was the IMF, alongside words like reform, privatization, and taxes.

Today it feels like a bad remake of the film ‘Back to the Future’ because the economy is crap and the politics is hot, and the IMF is driving economic policy. Today Kenya is implementing broad tax increases on fuel, incomes, imports, and businesses and even mulling carbon taxes on the advice of the IMF. Privatization is top of the agenda and ‘reform’ is everywhere, conditions of the IMF program that the country has entered because of fiscal distress. Kenya is not the only country on the continent under an IMF program, Ghana, Zambia, Mozambique, SA etc. are all under IMF ‘guidance’.

In the 1990’s under the structural adjustment programs imposed the IMF, African countries were forced to liberalise their economies, sell off state assets, pull down trade barriers and dismantle social safety nets. Causing immense pain and hardship on the back of policies dictated by disconnected bureaucrats and economists in Washington. Today, African countries are being advised to increase taxes, remove cushioning subsidies and tax breaks, let the value of currencies depreciate and sell off state assets, that are once again causing immense pain.

How did we get back here? How do we get out of it again? Most importantly how do we make sure that it never happens again?

How did we get here?

Getting out of the clutches of the IMF in the first couple of decades of the 2000’s took a lot of hard work, a booming Chinese economy and debt Jubilee from the west. How did we get back here? As with most things it was a combination of stupidity, naivete, and bad luck.

Stupidity: We borrowed too much for projects with disappointing returns (like Kenya’s SGR) or it was outright stolen like the tuna boat scandal in Mozambique. Essentially wasting the money that we had borrowed.

Naivete: After the financial crisis of 2008-09 money in the developed world was cheap, with 0% interest rates. Thus, that money needed by investors, pension funds, banks etc. was looking for returns. African governments seeing cheap money looking for a place to go, floated all manner of Eurobonds, dollar bonds and took syndicated loans and with our aforementioned stupidity, we spent it on the wrong things.

Bad Luck: The Covid-19 pandemic gave every economy a kick in the teeth, stopping growth and investment and then in 2022 the perfect storm hit, inflation forced interest rates up and the cheap money disappeared, at the same time those increased interest rates made the dollar much stronger, thus debt payments had higher interest rates and a dollar penalty. The war in Ukraine caused global food and energy prices to increase steeply, and with most African countries being net fuel and food importers., those imports got more expensive.

How do we get out of it (again)?

In the early 2000s African got lucky on two fronts. The Chinese economy boomed driving demand and prices of the raw materials up and providing a much needed boost for African economies after the IMF induced stagnation of the 1990s. Secondly, many African countries were granted debt relief under the highly indebted poor countries initiative, giving much breathing room to African economies that had been struggling under a significant debt burden. However, the continent cannot rely on lightning striking twice, thus we must actively put in place solutions that get us out of this situation.

Tax reform

First, Africa needs more of its own revenue, which means taxes. However, unlike the IMF’s advice African governments should not be putting additional taxes on their already overburdened citizens who make up their narrow taxbases. As I have written about previously by reforming the tax regimes for natural resources, targeting tax avoidance by multi-nationals, and expanding the tax base, African countries can expand their revenue collection without squeezing their citizens for little gain, with higher income and consumption taxes as many are doing on the advice of the IMF.

Spending Cuts

Second, spending cuts. Governments, particularly African governments waste money on unnecessary or silly things. The most glaring example is Ghana’s national cathedral. Focusing spending on the fundamentals, paying salaries, delivering services and key development projects, while cutting unnecessary spending would give governments some breathing room and ease the crowding out effect in domestic debt markets that is seeing governments borrow every cent they can, leaving little for the private sector to borrow, limiting investment and growth.

The IMF

Third, use the IMF. Not the institution, but its assets through something called Strategic Drawing Rights (SDR) these are interest bearing international reserve assets of member countries of the member countries of the IMF. SDRs are allocated to IMF members in proportion to their quotas of shares. SDR’s are held by states or specified institutions such as the Africa Development Bank (AfDB) as part of their forex reserves or they can be used to pay the IMF for loans or transactions. Many wealthy countries are holding SDRs that they do not use, and in the past the G20 pledged to reallocate $100 billion worth of SDRs to Africa. The Africa Development Bank has calculated that with its AAA credit rating it could leverage the funds as much as 4 times, meaning $100 billion could deliver $400 billion to African economies. Part of that could be used to help African countries refinance and restructure, dollar-based debts.

For instance, Kenya has $2 billion dollar bond payment it must pay in 2024. If it defaults, it would be disastrous to its economy and currency. If it tried to finance the payment through its own revenues it would cripple the government requiring massive cuts to services and personnel. If it tried to refinance the bond through international markets the interest would punish the country for years to come. If through the AfDB Kenya was able to refinance the bond, at favourable rates, for a period of time that made sense, Kenya bond holders would be paid back, and the country would get the economic and fiscal breathing space it needs to invest in development and not tax its private sector and citizens to desperation. This wouldn’t be a bailout or debt Jubilee, in the end Kenya would pay the money back to AfDB. There is no need for the painful choices Kenya and many other African states are being forced into, when the AfDB could use already pledged assets to solve the problem.

How do we make sure it never happens again?

Assuming we can find our way out of this mess, how do we make sure that Africa never loses its economic sovereignty to the IMF or other non-African institutions again. It won’t be easy, and it won’t be simple, but it is worth doing.

Discipline. African countries need to develop fiscal discipline, the days of presidents and political leaders using treasuries as personal playthings must end. If not the vanity projects, white elephants and waste will continue to drive bad debts and IMF bailouts.

African Capital Markets. As the continent comes closer together around trade, climate issues, and payment systems, we should add capital markets to that list. Why go to Europe or America to float sovereign bonds or raise capital, why not do it in Africa. Raising money from markets and investors that better understand and appreciate Africa. Most African markets rely on a combination of domestic markets, draining capital away from the private sector, and unreasonably expensive Eurobonds and syndicated bank loans. Developing regional/pan-African capital market would open a new venue for African countries to borrow potentially in their own currencies.

Expertise. Many of the African finance ministries who “took advantage” of international capital markets over the last two-decades, have, unfortunately shown that they do not fully grasp the complexity and repercussions of these markets. Thankfully long-gone are the days where there are not enough Africans with the right type of skills. There are more than enough qualified African bankers, financial experts and advisors who have worked from wall street to Hong-Kong executing complex transactions and trading in these markets. It is time to bring this expertise in house. Debt departments at ministries of finance need these people staffing them to develop viable debt strategies that are built for long term sustainability.

Conclusion – Back to future

In the film back to the future the protagonist, who went back in time eventually goes back to the future, safe, sound and more secure than before. We must strive for the same for the future of the continent’s fiscal well-being. A prosperous future for Africa, requires Africans being in-charge of our fiscal resources not faceless bureaucrats from the other side of the world. Questions around how African countries tax their citizens, where they spend that tax revenue and what they should be borrowing for should be debated and determined at home not in Washington, Brussels, or Beijing.

Africa is back in the IMF debt trap, and just like in the 1990s African countries are sacrificing their citizens through higher taxes, cutting services, and selling assets as demanded by the IMF in the name of sound economic reform. Getting out of this debt trap will be harder and likely more painful than the last time, but if we don’t our sovereignty will continue to be second class.

Rethinking African infrastructure: investing in the small for big results

The Africa Development Bank estimates that Africa needs as much as 175 billion US dollars a year by 2025, to close the infrastructure gap, which is cited as a significant constraint on its growth.

The notion of the infrastructure gap has driven African governments to borrow and spend billions on roads, railways airports, dams, and other large, ambitious infrastructure projects. However, this binge of infrastructure is starting to be questioned and rightly so. The continent is dotted with shiny infrastructure projects which are struggling to justify themselves as they have not created the growth, employment, revenues and development promised. Many have been vehicles for corruption and have burdened taxpayers with enormous debts which we are struggling to repay.

Much of this large infrastructure is built on the “build it and they will come” principle. That these huge projects will attract investment, industry and generate economic activity that will ensure that they can pay for itself. It is time to rethink this approach. Does Africa need Infrastructure, yes, however we need to rethink our approach to infrastructure. Investing in “small” infrastructure, that provides immediate benefits to citizens and drives quality of lie and economic development. Rural roads, urban roads, last mile internet and electricity connectivity, pedestrian infrastructure, community healthcare infrastructure, warehousing, and cold storage.

Build it for those that are there.

On May 31st, 2017, President Uhuru Kenyatta opened the first phase of the largest infrastructure project in Kenya’s history, christening it the ‘Madaraka Express’. It was the Chinese built Standard Gauge Railway (SGR) which parallels the old colonial line from Mombasa on Kenya’s coast through the capital Nairobi to Lake Victoria and on into Uganda. President Kenyatta hailed the railway as a developmental gamechanger stating that ‘Large and vibrant towns will grow along its length, new factories and hotels, and service businesses will employ hundreds of thousands of young people. Farmers will earn more as their produce makes its way to buyers faster and cheaper’. Not only has none of this come to pass, but the railway has also been losing money and bleeding the country dry with debt payments. In the 2021-22 financial year the railway reported an operating loss of 31 million US dollars while the country made 209 million dollars of debt payments for the railway.

Across the continent this tale is repeated mega infrastructure projects, justified as the foundation upon which Africa’s future development will be based. Mega railways, airports, ports, dams, and power stations, that will kickstart manufacturing industries, transform large scale agriculture and make the continent more attractive to investors. These projects, by and large have not done so, instead becoming a drain on the public purse, threatening critical services and other development projects as we try to pay back loans.

It is clear from the mess that many of us have gotten ourselves into, that Africa needs to rethink the “build it and they will come philosophy” for how it invests in infrastructure, and the type of infrastructure it invests in.

Thinking small: Rural Roads, warehousing, pedestrians, and the last mile.

What small infrastructure should African governments be investing in. It should be small infrastructure that enhances the productivity and growth of the majority of livelihoods in the economy. It should infrastructure that improves the daily lived experience of citizens. It should be infrastructure that drives the growth of local economies and industries. And there are a number of options that would serve one or more of these objectives.

Rural Roads

Much of the mega-infrastructure investment on the continent has focused on transcontinental highways meant to spur intra-African trade, expressways to beat the traffic menace in cities and superhighways for national prosperity. However, most African countries remain primarily agricultural economies. ‘Agriculture employs approximately 65–70% of the African workforce, supports the livelihoods of 90%of Africa’s population, and accounts for about a quarter of the continent’s GDP’[1]. Enhancing rural transport networks will improve access to markets, particularly for small farmers allowing them to get their produce to market quicker and cheaper. It will reduce the cost of getting goods and services to rural communities and make travel to regional centres easier. All critical to improving opportunities and livelihoods for local communities.

Warehouses

This is a subject I have written about previously, certified warehouses that can properly store agricultural goods, would reduce post-harvest losses. Africa loses approximately 100 million tonnes or $4 billion worth of food to post harvest losses. If not lost that food would reduce the cost of food, improve availability and boost incomes throughout the value chain from farm to fork. Proper storage would save lot of this food. Beyond just improving food supplies, certified storage would improve farmer access to credit and markets as certified storage is the foundation of commodities exchange systems.

Beyond agriculture, certified warehouses with refrigerated facilities would enable the provision of healthcare by enabling the storage of medicines and vaccines that can then be distributed to local facilities or clinics at short notice.

Small urban infrastructure

Infrastructure in African cities is a perennial problem, causing epic traffic, hurting businesses, and creating unfortunate living conditions for many. What this requires isn’t investments in superhighways and expansive public transport systems, but people focused infrastructure. As previously written, “78 per cent of Africa’s population commutes by foot and on bicycles every day,[2]”. Investing in sidewalks, footbridges, cycle lanes, road crossings, footpaths etc. will save lives and make the lives of millions of people easier.

Second investing in “aesthetic” infrastructure such as parks, streetlights, signage, and street markings. This may seem frivolous, but it serves a purpose, people need green spaces for their mental and physical well-being, well-lit and marked streets enhance safety, service delivery and facilitate businesses. Improving the liveability of cities by investing in small urban infrastructure will serve to improve quality of life and the business environment boosting urban economies.

The last mile

The last mile can be broadly defined as the final stage of a network or transportation network before its final destination. It is the fibre cable that brings internet to individual buildings, the electricity line that connects homes to the grid, the telco tower providing cell service and the road leading to your front gate. Investment in the last-mile is about making sure those that would be bypassed by dispassionate cost-benefit analysis. This investment in the last mile does not mean governments must spend billions building power cables and fibre lines. Innovative structures, such as Kenya Universal Service Fund, which uses funds from fees and levies paid by telecommunications companies to fund the building of infrastructure and provision of services in underserved areas. This is why Kenya has 98%[3] of the population covered by a mobile network, which in turn has opened access to mobile money and internet services making Kenya a global digital leader.

Conclusion: building small to enable the big

People often talk about Africa’s fundamentals (large young population that is underserved market), when making the case for large investor attracting infrastructure. However, what they forget, is that those fundamentals will remain theoretical unless those people have livelihoods and growing incomes. Shifting infrastructure investment to serve those people and create those incomes is a much more powerful magnet for investment than any argument based on theoretical potential.

African leaders spend a lot of time talking about the Asian Tigers and the extraordinary economic growth. What they often fail to mention is that those countries, invested in creating domestic demand growth by improving the incomes of their populations. Through land reform, education and strategic investment, they created the domestic demand that provided the base upon which their industries could grow. Investing in people and local economy focused is one of those strategic investments.

For Africa, investing in enabling “small” infrastructure, that improves people’s lives and livelihoods shall do more to boost our economies than massive billion-dollar projects aimed at theoretical investors for potential future growth. Boosting domestic livelihoods, incomes and demands is self-reinforcing, it creates demand which local industries can respond to and that investors want to tap into. Which will, in future, justify infrastructure mega projects that are built to support real economic development.

[1] Africa Development Bank, https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/AEB_Volume_8_Issue_3.pdf

[2] UNEP https://www.unep.org/news-and-stories/press-release/better-infrastructure-and-policies-can-protect-billion-african

[3] Kenya National Bureau of Statistics, 2023 Economic Survey, p.303

Rethinking African debt restructuring

Under its current form, that is imperialism-controlled, debt is a cleverly managed re-conquest of Africa, aiming at subjugating its growth and development through foreign rules. Thus, each one of us becomes the financial slave, which is to say a true slave.- Thomas Sankara

Several African countries have a significant problem. They are highly indebted, in a post-covid low growth global economy, with high inflation driven by wars and broken supply chains. Many African states are unable to effectively deal with the lack of growth or cushion people from inflation. All because the hangover of the pre-covid debt binge has left us without fiscal space.

I say ‘our’ because my country, Kenya, is heavily indebted and desperately trying to avoid a default. As a result, I have watched the debt restructuring processes in Zambia and Ghana closely, as it is not unlikely that the same process will be dominate headlines in Nairobi. It is clear from the example of Zambia and Ghana, that we must rethink our approach to debt restructuring if we are going to dig ourselves out of this debt hole.

What’s going on in Ghana & Zambia

Like much of the rest of the continent Ghana and Zambia borrowed from mix of creditors. Domestic and international bondholders, syndicated loans from banks, concessional lending from development institutions, bilateral lending from foreign governments and commercial loans from state bank Chinese enterprises.

Thus unlike the debt jubilee of the early 2000’s African debt forgiveness is not a simple matter of getting it onto the agenda of a G8 meeting. You must bring all these various stakeholders, with wildly different interests, and sometimes open hostility towards each other, to the table to restructure interest and principal payments.

Unfortunately, as we can see in Ghana and Zambia these various interests combine to make a restructuring process a near impossible slog. Large IMF bailouts (often the goal of the restructuring process) is conditioned upon consensus among the majority of creditors. However, the bondholders won’t even come to the table, the Chinese (bilateral and development) can’t agree with the west, and the world bank and commercial Chinese lenders are unwilling to take terms worse than governments or bondholders. So they get stuck in limbo, both Zambia and Ghana have defaulted, but neither are anywhere near a satisfactory outcome to restructuring negotiations with their creditors.

A different approach

It’s a clear signal to the rest of the continent that we must approach this differently. African countries must restructure their debt because we need the fiscal space to invest in our countries and drive growth. We need the fiscal space to cushion citizens from the soaring cost of living. What use is a government that just pays your tax money to other people.

Start talking now.

If you wait for default before you start negotiating with your creditors, it is too late. It Is crucial to sit down with your creditors before it is a crisis to restructure loan terms. If the context of a restructuring is a fiscal strategy when you are solvent rather than a crisis, your negotiating partners will be much more open to engagement. Not all of these talks will be successful, but some will be and every bit helps.

Tax reform

Fundamentally only two things will get you out of a debt hole. Economic growth and revenue growth. Our complex, badly policed tax systems leak revenue and offer opportunity for corruption, while also limiting growth through encumbering businesses with unnecessary rules and compliance costs or having to pay bribes. Tax reform does not mean increasing taxes, all that will do is punish existing taxpayers. Rather African governments can aim for three things.

Close compliance gaps – there are lots of people who should be paying taxes who aren’t. Bringing them into the tax system is a quick and painless way to bring in additional revenue.
Create an easy, affordable, and painless pathway for the informal sector to become formal taxpaying businesses, to broaden the taxbase over the long term.

Broad tax reform that is aimed at closing loopholes and exemptions, getting our fair share from extractive multinationals, a pan-African framework for dealing with multinationals and creating a stable, predictable environment that local

Tax reform is critical to jumpstarting our economies with organic indigenous growth and increased tax revenues will give any country more room to negotiate in a debt restructuring process.

Tap into domestic capital.

One of the causes of the current crises is that African countries binged on “cheap” foreign debt. This should be a lesson to African countries that we must tap into more African capital. It is much better to borrow in our own currencies from our own people. To do so African countries need to create attractive long term bonds and investment instruments that people can invest in or even swap short term debt for. In addition, African countries should look in to the creation of diaspora bonds, aimed at tapping the pool of capital built by citizens living abroad.

Communicate

I have written previously that good communication is good policy. This is doubly true when it comes to capital markets. They must believe the credibility of your policies and plans, to buy into a restructuring process. This means communicating at all levels. Through policy documents, high-level bilateral engagements, public forums, the press, public education etc. You must explain reinforce, repeat, and defend your strategy to the point that it becomes the dominant narrative. You must engage your key stakeholders (such as creditors, IMF and World Bank board members, key foreign governments, etc.), often, in person and with credible high level representatives so they are personally sold and invested in your success.

A lack of communication creates information black holes and erode any confidence in whatever restructuring plans you may have. Markets are fickle things, and capital is cowardly. A lack of confidence has plunged countries towards crises, a recent stark example being the short lived prime-ministership of Liz Truss in the UK.

Restructuring debts smartly

It is exhausting. African governments have been here before. Borrowed large amounts of money from foreign creditors, to fund development that doesn’t quite happening and end up endangering their own solvency.

The last time this happened, Africa got a debt Jubilee. That will not happen this time. The nature of our creditors and debt has changed. Our only viable pathway is to embark on debt restructuring processes that will save us from bleeding ourselves dry to pay debts rather than fund development. It won’t be easy, and we will have to pay, but a reformulated approach to restructuring could make that payment less painful and give us the space to grow.

2023 from an African policy perspective: opportunities amidst global headwinds and risks.

There is an old joke about Russian history, that every chapter ends with the sentence “and then it got worse.” Its an apt joke when thinking back on 2022 and looking ahead to 2023. In large part because Russia making things worse has been a feature of the last 12 months and will continue to be so in 2023.

From an African perspective, 2022 was a tough year. Just as the world was opening up and getting control of the Coronavirus, Russia invaded Ukraine sparking off a geopolitical and energy crisis, stoking already rising inflation to alarming levels. This prompted western central banks to respond by raising interest rates and the value of the dollar soared, hurting Africa by increasing the cost of all imports, fuel and food included.

And then it got worse.

2023 will be another tough year in many respects. Inflation, energy turmoil, China’s economy will not prop up the global economic growth and, geopolitical competition between the US, China, and Russia will continue play out in Africa.

Thus, policy makers on the continent must navigate these global headwinds. However, as I have written about before, there is opportunity in crisis and if policy makers on the continent are brave enough and imaginative enough, a bleak global picture can be turned into one of green shoots for Africa.

The Economy – growth can be found

The economic challenge facing Africa this year is not to be envied. Inflation will continue to be a significant problem across most economies continuing to make food, fuel, electricity and other necessities more expensive straining households and businesses alike. Debt crises already in progress in Ghana and Zambia are likely to spread to other countries on the continent who have over borrowed and spent irresponsibly. Sluggish global growth (or recessions) will drag down growth on the continent. Add to this Africa’s two largest economies, Nigeria, and South Africa, will be focused on two general elections.

Thus, policy makers have two goals. First, to navigate a tough economic environment. This must involve blunting inflation through a combination of short-term interventions that protect citizens and business from the worst impact and long term strategies to fix structural issues that make Africa vulnerable to imported inflation (you can read a more detailed analysis here). Second is the debt problem, like Zambia, countries at risk of debt crises must proactively engage their creditors, and bond holders to get ahead of crises and maintain confidence in their economies and if possible, get some debt forgiven or terms changed to make their payback less burdensome. In addition long term debt frameworks should be put in place to end the cycle of debt accumulation, crises, begging, and forgiveness, otherwise, in another decade we will be back in the same place. Finally, the need to cut unnecessary spending and combat corruption is obvious but I will not spill any more ink on the subject.

The second economic imperative is to find growth, and this is where imagination and boldness is needed. If growth is not going to be driven by the global economy, borrowing or government spending we must find it with innovative policy home, domestically and regionally, and there are a number of strategies that can be employed.

On the regional front, this is the perfect opportunity to double down on the African Continental Free Trade Agreement (AfCFTA), to build continental trade links that can be alternative source of growth. If this is aligned with the strategic investments in areas like warehousing intra-African trade could be significantly stimulated.
An area of untapped potential is tax reform. Our complex, badly policed tax systems leak revenue and offer opportunity for corruption. Reforming our tax systems and moving towards an African multinational tax consensus could unlock revenues for governments and unleash the potential of African business.
Reforming domestic credit policies to unlock lending to MSME’s and small farmers could unlock the significant potential of Africa’s small businesses and small farmers that could drive employment, business growth and agricultural productivity.
Finally, International capital markets will be distorted for some time with many unwilling to invest in Africa. It will thus be important to put in place policies that encourage domestic investors (e.g., pension funds, mutual funds, etc) to engage with and invest in African businesses and commodities.

Global economic conditions will be unfavourable for some time. However, I firmly believe that should not hold Africa back. With intelligent and creative economic policy, Africa can stoke growth in its domestic and regional economies.

Geopolitics – wary opportunity

This is a subject I have written on previously. The world is changing, the USA is more focused on competition with China and containing Russia, and this great power competition will be played out on the continent as well. The EU and Britain are concerned with solving domestic issues such as immigration and energy access and this will shape their approach to Africa. And there is rise of regional powers (India, Japan, Brazil, turkey, Australia, Saudi Arabia etc.) who will all be interested in expanding their relationships with the continent.

From a geopolitical perspective, Africa first must be wary. During the cold war we became a playground for superpower competition and that cannot be allowed to happen again, African interests must come first, adventurism must be resisted.

However, this also opens opportunities. If we can understand the interests and goals of various geopolitical players, we can use that to our advantage where interests are aligned. For example:

As the US and West seeks to diversify its supply chains and sources of raw materials outside of China, Africa could use this to attract investment into alternative industrial supply chains in Africa, and better deals for raw materials especially the rare earths, cobalt, and lithium critical for electronics.
Deeper engagement with the middle powers and attracting their investment could give Africa an alternative source of investment outside of China and USA and dilute their influence.
Strategically leveraging the fifty-four votes at the UN and other global bodies could be used to put African voices in strategic places (the UN security council, G20, COP, IMF etc.) to help shape the global agenda.
Critical issues, like immigration in Europe or the need to offset carbon emission in the middle east or Australia can be used to leverage investment in critical areas on the continent. E.g., immigration can be stopped with job creation, or carbon emissions could be offset by green energy in Africa. Where can the funding for that come from?

2023 – tough but doable

2023 will be a tough year not just for Africa but the world. This is should not be an excuse for a lack of progress and development on the continent. We must use our own agency and through policy. With intelligent, forward looking and sometimes creative policy, we can achieve positive results despite an unfavourable global environment. In crisis and adversity there is opportunity, it is time for Africa to start taking advantage of those opportunities and 2023 is the perfect time to do so.

Charting Africa’s Energy Future

Africa’s Energy Future

The world is at a crossroads. The war in Ukraine has seen Russia force Western Europe into an energy crisis, and the wider world has been subjected to higher energy prices to keep the lights on and cars on the road.

In Africa, this pain is being felt as energy-driven inflation. Coupled with the rise of the dollar which is making everything paid for in dollars, such as oil gas and coal, wheat, maize, cooking oil and fertilizer even more expensive, doubling the pain. The focus of most policymakers is on the immediate cost of energy and its impact on the cost of living. However, the question we should be asking ourselves is, what is Africa’s energy future?

In a world where the impacts of climate change are causing a myriad of natural disasters, should we be investing in hydrocarbons? What technologies will provide the right mix for the continent, and how do we transition to that mix? Energy is not just electricity and petroleum, its cooking, heating, fertiliser production and the lifeblood of a modern digital economy.

How we chart our energy future will determine our socioeconomic future. Unlike the industrial revolution or the rise of the Asian tigers, we do not have the luxury of using oil, gas, and coal without concern for the consequences. Nevertheless, Africa does need an energy revolution as the foundation for a developmental one, and for that to happen, we must ask the tough questions about the continent’s energy future.

What must Africa’s energy future achieve?

As the continent thinks about its energy future there are a number of factors that must be considered as part of the equation for developing a viable long-term energy strategy.

Access

Currently, about 43% of the continent, over six hundred million people do not have access to energy. Energy access is critical to improving standards of living, basic services (lights in schools, refrigeration and working machines in hospitals etc.) and as a foundation for growth (energy is critical for the development of any sort of industry). Thus, the first imperative is that Africans must have access to affordable and reliable energy.

Sustainability

Africa is facing the brunt of the global climate crisis and we cannot be responsible for pouring fuel on an already raging fire. Africa should not and must not try to power the development of the continent by burning hydrocarbons. We must find and use alternatives. Many see this as unfair, as the developed world blocking the path that they used to industrialise while making Africa pay the price for their past sins. While morally, there may be validity to this argument, it does us no good to make it, as we would bear the brunt of its consequences both now and in future generations. As I have written before rather than treat climate change as a disaster that happens to us, we must also see it as an opportunity as I have written about previously. Seize the opportunity to leapfrog the hydrocarbon phase and make Africa a Green economic hub. An opportunity to develop new crops for Africa whose IP is owned by Africa that does not need as much energy-intensive fertiliser. An opportunity to stop begging for aid but instead use our oil, gas, and coal reserves to instead make money to fund our energy revolution off of carbon credits.

Africa first

Africa’s energy future cannot be another victim of decisions made in foreign capitals. By this, I mean that we cannot allow Africa to be the casualty of the developed world’s net zero strategies, which will affect the continent in a number of ways.

First and foremost, what is the long-term viability of Africa’s, oil, gas and coal deposits, which an energy-starved west is pushing us to develop? Yet, in the long term, they will choose their own net-zero path and leave the continent with stranded assets. Should we consider the option of selling these assets as carbon credits or offsets instead rather than taking the financial and environmental risks of developing them (you can read more about this idea here).

Second, it is likely that development financing and aid will have new “climate” conditionalities attached as extensions of national climate goals further reinforcing Africa’s need to rely on taxes, not aid and decouple ourselves from the policy whims of Brussels or Washington.

Security

Africa must be in control of its energy future, the fuel, resources, and technology that is used to produce that energy must be in Africa. As the current crisis in Europe shows, without control of your own energy, your destiny is decided by international energy markets. Thus, if Africa decides to pursue green hydrogen, it must be produced on the continent, and we must have an ownership stake in the plants and technology doing so. Energy security ensures accessibility.

Charting a path to the future

Charting Africa’s energy future will require crafting an energy policy that combines the four elements of accessibility, sustainability, security, and primacy. How they are combined and balanced will look different in each African country (and therefore I have not advocated any specific energy solutions in this post). However, there are things we can do as a continent (or regions of the continent), which can have a positive impact such as developing inter-connected grids. Sharing knowledge, expertise, and investment (how can Kenya’s expertise in geothermal energy be applied on the continent). Most importantly, what African financing solutions can we develop to fund an energy transformation on the continent?

Energy is the lifeblood of any economy and the foundation of socio-economic transformation. If Africa is to develop and build a better future energy will be a key part of that story. We must be deliberate and forward-thinking in how we build our energy infrastructure to ensure that better future. We cannot take it for granted or wait for someone else to produce the solution or the funding. Through smart, deliberate policy we can take charge of our continent’s energy future and take control of the future of our economies and societies.

Radical growth

Engagement – responsive democracy

A wake-up call

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Regulation that works not hinders

Coherent predictable policy

Public Private Engagement, Accountability and Action.

Jobs and growth

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Predictability and stability

Connect the dots.

Bad policy is bad business.

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1. Debt, the IMF, and Delivering Growth

2. Painful medicine and hard recoveries

3. The Dollar and the Donald

4. The Black Swan

5. Climate more hot air or action?

6. More continental trade (hopefully)

2024 tough but not disastrous

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Fostering Strategic Cooperation

Building complexity

Conclusion

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How did we get here?

How do we get out of it (again)?

How do we make sure it never happens again?

Conclusion – Back to future

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Build it for those that are there.

Thinking small: Rural Roads, warehousing, pedestrians, and the last mile.

Conclusion: building small to enable the big

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What’s going on in Ghana & Zambia

A different approach

Restructuring debts smartly

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The Economy – growth can be found

Geopolitics – wary opportunity

2023 – tough but doable

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What must Africa’s energy future achieve?

Charting a path to the future

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