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Solving Africa’s inflation problem

Inflation is back.

Covid has ravaged our economies and scrambled supply chains. Russia invaded Ukraine upended global commodities markets. The impact of these on the global economy is that inflation is back. Prices across the board are rising, and Africa has not escaped this phenomenon, it is causing real pain, as protests across the continent show. However, Africa is in a real bind, our governments don’t have the financial firepower to cushion their citizens easily, and the causes of inflation are beyond our control in the short term.

Much like the coronavirus pandemic there are some tough choices to make. These must be tailored to our context. Outside help will be hard to come by, and for the long term, there are lessons to be learned to ensure that we use the current situation to make sure we never end up here again.

Another crisis fewer options

The current inflationary crisis is problematic because its causes are not native to the continent. Meaning that the tools at our disposal to deal with it in the short term are limited. The primary drivers of inflation are the global supply chain disruptions caused by the pandemic which have not been resolved. Second the war in Ukraine has meant that two of the world’s largest suppliers of oil, gas, wheat, fertilizer, and cooking oil have suddenly stopped shipping those commodities driving the prices of food and energy up all over the world. Africa is a net importer of wheat, fertilizer, oil and gas, and cooking oil, less supply and higher prices will have broad impacts throughout the economy.  Third, the developed world’s response to inflation has been for their central banks to raise interest rates, and the Federal Reserve Bank in the USA has been particularly aggressive. This has strengthened the dollar in relation to African currencies, making buying global commodities or goods in global markets more expensive, while at the same time making dollar denominated debt payments more expensive, meaning our governments have even less money to spend on other priorities.

The causes of the current inflationary crisis are not homegrown and that severely limits the tools available to African Governments to mitigate it. Interest rate rises, the tool most commonly used to fight inflation, is effective when the cause of inflation is too much demand or an overheating economy. That is not the case here, and despite African central banks raising rates it won’t have much impact beyond dampening already weak economies. Governments have tried to use what little fiscal space they have to subsides fuel and other basic commodities. However, this too will have little impact as African governments do not have the financial firepower to do much else beyond cushion the impact of inflation rather than shield people from it.

Short Term fixes

So, what can we do in the short-term? Despite limited options there are a few things that African governments can do ease some of the pressure inflation is putting on their people. First is to look at their tax regimes, many countries levy various combinations of VAT, Excise and import duties on fuel, fertiliser, and basic food commodities. Examining and reducing those in the short term will provide some price relief, though the government may lose some revenue its much simpler and cheaper than providing subsidies.

Second, is to apply subsidies where they will have the most impact, do not subsidize fuel, that’s a losing battle with global commodity markets, rather subsidise commodities like fertilizer to ensure farmers can produce as much food as possible domestically and ease some of the pressure caused by imported food prices. Target support at public transport providers both formal and informal to enable them to keep their prices affordable. We need to spend our little money where it has the biggest impact, not where it generates the best PR.

Third help your private sector strengthen and diversify their supply chains, make your embassies and consulates available to support local companies trying to find cheaper supply alternatives or even bring the power of state to bear through diplomatic ties or credit guarantees to lower the risk and the prices local businesses have to pay for global inputs.

Fourth, governments and central banks must be honest with their people and businesses, explain why what is happening, is happening and how it is being dealt with. Managing expectations or guiding markets can be just as effective as many policy interventions.

These measures won’t stop inflation. However, they will mitigate it. Which is better than simply copying what others are doing and raising interest rates, doling out cathartic subsidies and crossing our fingers hoping for a break.

Long term solutions

I have written previously that the pandemic showed us that we cannot rely on the rest of the world to help in a crisis especially when they too are affected. The inflation-crisis is global and in Washington, London, and Brussels they are far more worried about their own people than what it is doing to the ability of poor Africans to put food on the table. Thus, we must take a step back and look at the structural issues that have landed us in this predicament and aim to fix them so that next time the global economy is thrown into turmoil we are not turned into basket cases

1.    Diversify, diversify diversify

It is critical that Africa learn from and rectify a key mistake. Over reliance on small number of suppliers will hurt when that supply is restricted. It is key that Africa deliberately looks to develop alternative sources of wheat, fertilizer, cooking oils and energy. This needs to be done both domestically, regionally, and internationally. How can we strengthen the domestic production of these goods, can we identify regional suppliers and use the ACFTA or regional economic blocs to access that supply and can we make sure there is regional and ideological diversity among our global suppliers so that if one of them ever faces crisis it is not transmitted wholesale onto the shelves of African shops?

This diversification must also extend to what we consume, President Museveni of Uganda may have sounded insensitive when he told Ugandans to eat cassava instead of bread if the price of bread is too high, but he was not wrong. If we can nudge African consumers to use goods and products that can be grown or made cheaply here, it is the ultimate insulation from supply-side driven inflation that we are experiencing now.

2.    Develop domestic debt markets

A massive problem facing governments with large amounts of foreign loans (e.g., Zambia, Kenya, Ghana etc.) is the weakening of their currencies, locking them into a vicious cycle of a strengthening dollar draining money out of the country as debt payments become more expensive. Strengthening domestic local currency debt markets will ease this pressure in the future, and while every country may not be able to develop a fully fledged bond market, that need not be an issue. African countries can issue debt in other African countries with better developed markets, it may not be ideal, but it would be cheaper for Zambia to issue Rand denominated debt rather than dollar debts.

3.    Tax systems that make sense

As pointed out previously, in many African countries the tax systems are reinforcing rather than mitigating inflation. African governments need to take a step back and look at those tax systems to identify where they do more harm than good (e.g., taxes on basic commodities) but also identifying taxes that can be used as policy levers. Raised or lowered as appropriate when needed.

4.    Africanise monetary policy

By this I mean there must be a recognition that monetary policy in Africa cannot simply copy what happens in Washington or London, or blindly implement what the IMF recommends. It is clear that our fiscal and monetary policies must be better collaborated to ensure that our debt strategies are geared to tap domestic sources as far as possible. That interventions in currency markets are timed and designed to have the least impact on citizens and that interest rates are used when appropriate in reaction to conditions and developments in our markets. To do this we must reassess the African approach to monetary policy, with the questions of what affects our citizens, markets and businesses at the centre.

5.    Fuel

Often the largest contributor to inflation is rising fuel prices. It is not possible to completely get rid of the need for oil and gas but concerted long term action can ensure that demand for oil and gas is reduced. Further reducing African economies exposure to oil price driven inflation.

What parts of our transport systems can we electrify, make more efficient or switch to alternative fuels? How and where do we invest in biofuels and renewables? What’s needed to make our energy systems more efficient? All big questions, but worth answering not only to reduce exposure to price spikes but also to make a contribution to mitigating climate change.

Rebuilding for resilience 

Inflation is painful, and we are all feeling it. From a policy perspective it is tricky to solve when it driven by factors outside of our control like wars in Europe and highly optimised supply chains falling apart. However, our policy cupboard being is not empty. There are things African governments can do in the short term to ease the pain, but it will not be a cure all and they must be honest about that.

In the long term, we must rebuild African economies with resilience in mind. Not just against pandemics but against an increasingly uncertain world where crises and economic shocks are more commonplace. There will be situations in the near future that will increase inflationary pressure globally and on African economies. We must diversify and contextualize our approach to economic policy making to ensure that this rebuilding for resilience is done with the African context, citizens, and businesses at its centre.

Africa will face inflationary crises in the future, lets use this one to make sure we are prepared for them 

 

Africa needs its own CoP

“No more empty promises, no more empty summits, no more empty conferences. It’s time to show us the money. It’s time, It’s time, it’s time. And don’t forget to listen to the people and places most affected.” – Vanessa Nakate Ugandan Climate activist

In November 2021, the world came together for the 26th meeting of the Conference of Parties, CoP 26, in Glasgow. To build on the Paris climate change agreement and work towards keeping global temperature rises to 1.5 degrees or below. The outcome of summit was a disappointing agreement with weak promises to “phase down” instead of phase out coal, and a reaffirmation of the Paris agreement. Much of the progress hoped for at the summit was again punted down the road for finalisation at a future summit.

More relevant to us is to ask whether Africa’s goals were met. Frankly, no (you can read more here). On climate finance and technology transfers from the developed world to poor countries old unmet promises were remade, while African countries are already spending billions on climate adaption. On climate responsibility developed countries refused to accept responsibility for historic emissions and climate related losses.

The CoP process is not working for Africa, which despite being responsible for only 3.8% of emissions will be hardest hit by climate change, and through 26 CoP processes the progress on Africa’s climate agenda has been marginal. There is no reason to expect CoP 27 in Egypt in 2022 will be any different. In an earlier article I wrote about the need to strengthen African multilateralism, and climate change is an area that is ripe for that sort of initiative. Africa needs its own CoP, tailored around its climate needs and goals, mobilising climate finance and driving global climate action.

What should AfriCop look like?

Since 1992, world governments have met to forge a global response to the climate emergency. Under the 1992 United Nations Framework Convention on Climate Change, COP stands for conference of the parties under the UNFCCC, the supreme decision-making body of the Convention.

This can be replicated under the African Union, all that would be needed is a resolution under the Heads of State Summit establishing an African Conference of Parties. The key question is what would this AfriCop do what should be its purpose?

1.Get rid of the begging bowl

There are two realities of climate funding that Africa must deal with

  1. It is clear that the developed world cannot be relied on to keep its promise to provide $100 billion a year of climate funding. I
  2. Despite promises made by multinationals and hedge funds, the private sector cannot be relied upon to provide adequate climate funding or investment. The case of the UN backed climate fund launched with much fanfare and promises on the brink of collapse is emblematic of this.

As a result, it is time to get rid of the current funding strategy of holding out the begging bowl and develop a new funding model. This can and should be a core mandate of an AfriCop and there are several options available to Africa:

  • Africa could use its vast Fossil Fuel resources. Not by digging up the coal, oil, and gas, rather by selling it as a carbon offset. Realising the potential earnings and profits from these resources, while keeping that carbon that would otherwise have been emitted into our atmosphere in the ground. I explore the idea in more detail here.
  • Africa’s mineral wealth goes beyond hydrocarbons, lithium, cobalt, copper, and rare earths that are critical for the manufacture of green technology are all found in abundance in Africa. This resource extraction, where it leaves continent, needs to be taxed properly closing off avenues for transfer pricing and other tax avoidance strategies. Something I wrote about here
  • In 2016 the AU decided to implement a 0.2% levy on imported goods to finance the AU and reduce dependency on donor funding. This is an idea that can be revived, by imposing a tax on the carbon content of goods imported to Africa from industrialised economies most responsible for historic greenhouse gas emissions, the tax could potentially be waived if they meet their climate funding promises.

All these mechanisms would create funds in individual countries which they could use these as they please, maintaining the agency of those countries to decide what is most critical for them. A portion potentially going to one of the regional or African development banks to disburse to climate related projects or programs that have a continental or regional impact.

2. Develop and drive an African Climate agenda and voice

A dedicated AfriCop would be in the unique position of focusing on Africa’s climate needs and African solutions to climate change. And this presents two critical opportunities.

First to develop a much stronger foundation for the African Group of Negotiators when representing Africa at global summits and treaty negotiations, a stronger more united African voice would have a much greater impact on the world stage and would weaken the efficacy of divide and rule tactics.

Second, to build bridges and common positions with the other developing world countries and regions that face a similar climate dilemma (largest impacts with the least resources to mitigate or prevent them) developing strategies and proposals that can be put forward and pushed at a global level for the benefit of the so-called Global South.

Third, AfriCop can provide a constant consistent African voice on climate both on the continent and on the world stage. Not just coordinating and pushing an agenda but telling Africa’s story on the impact of climate and what we are and can do about it.

Conclusion

Some of you may be reading this thinking that Africa does not need yet another organisation to add to the plethora of regional and continental organisations across the continent that do little. I share that scepticism; however, of all things the Covid-19 Pandemic gives me hope.

After the Ebola crisis of 2014, the 26th Ordinary Assembly of Heads of State and Government to improve coordination among health institutions among African Union member states in dealing with disease threats set up, The Africa Centres for Disease Control and Prevention (Africa CDC) as a public health agency of the African Union to support the public health initiatives of member states and strengthen the capacity of their health institutions to deal with disease threats. The Africa CDC has exceeded the expectations of many throughout the pandemic, it has worked to coordinate responses across the continent, collectively acquire PPE, resources, and vaccines for the continent, spread learnings and experience from one country to all and worked to help government across Africa more effectively manage the pandemic.

Climate poses a similar challenge to health threats. Those threats pose a challenge to us all, second no individual country has the capacity and resources to face the challenge alone. Third, this issue affects aid and grant giving nations and like the pandemic, when they are under threat, Africa is an afterthought at best. Thus, similar conditions exist in climate policy as they did in health for a pan-African institution or initiative to find wide acceptance, buy in and cooperation among African governments and publics to make it viable. Africa needs its own CoP, its way to drive an Africa focused agenda both at home and on the global stage, and the elements exist for it to be viable and successful.

After Ukraine: Africa in a new world order

For the times they are a-changin’ – Bob Dylan

In 1956 Britain, France and Israel invaded Egypt. Their goal was to regain control of the Suez Canal and to remove the Egyptian president Gamal Abdel Nasser, who had nationalised the Anglo-French owned Suez Canal Company, which administered the canal. However, pressure from the USA, USSR and UN led to the withdrawal of invading forces. More importantly the episode humiliated the British and French governments, it signalled the end of the era of the Western European powers as the worlds major powers directing global events and using gunboat diplomacy to get what they wanted and confirmed the Cold War powers the USA and USSR.

On February 24th Russia invaded the Ukraine, setting off the first large scale inter-state war in Europe since the end of World War 2 in 1945. Not only does this action break the post-war European security settlement, but the weak response of the West imposing piecemeal sanctions that have neither stopped or deterred Russia, like Suez in 1956, signals the end of the post-Cold war world dominated by the West. That while the USA and EU remain global military and economic powers, they are not, as George Bush once put it, “the deciders”.

A new world order is emerging, where there is no pre-eminent power like the USA, but one where there are two global powers (the USA and China), regional powers (Russia, India, UK, Japan, Brazil) and supra-state alliances like the EU all competing to satisfy their interests and goals. Where does Africa fit in this new world order? How does Africa position itself and work to ensure that its agenda is met and is Africa’s voice is heard on the world stage?

1.   What will this new world look like for Africa

Russia has shattered international norms that have existed since the end of Second World War and signalled the beginning of the post war settlement.

  • In the face of a much more assertive Russia the West, specifically the EU/NATO will itself have to be a lot more assertive and will look to match or outcompete Russia not just in Europe but across the globe including in Africa.
  • While the USA will still be a global superpower, it will not be the only one as it has been in the past. It clearly sees its main competitor as China, and while the main theatre of competition will be in the Pacific. The USA is already keen to compete with China in Africa where it sees China as having gained an advantage.
  • For China they will be looking to continue growing their influence and footprint on the continent especially in relation to the USA and Europeans.
  • In addition to the big 3 (USA, China and the EU) regional powers, Russia, Japan, India, Brazil, Turkey and the Gulf States will all be looking to grow their influence on the continent.

What does this mean for Africa, what is this influence that these world and regional powers are looking for. As has always been the case, the world continues to covet Africa’s resources, the traditional resources of oil, gas, precious and industrial metals, but more than that Africa has the resources (rare earths, lithium etc,) that are needed for the green transition. With the worlds largest population of young people, Africa is also a critical market for the future and access to those markets is becoming increasingly important. In short, Africa is strategically and economically valuable and as a result in a multipolar world there are significant risks around how the rest of the world engages with Africa. However, if Africa rises to the challenge and is smart about how it navigates this new reality there is a significant opportunity reshape Africa’s influence and place in the world.

2.   Learn from the past, stand apart from the competition

During the Cold War when the USA and USSR were competing for global influence and Africa became a theatre for this competition. With the superpowers throwing their considerable weight behind various regimes to support their own strategic or ideological interests, despite those regimes being the opposite of the principles espoused by the superpowers. As result the West backed the apartheid regime in South Africa, and Mobutu in Zaire while the Soviet Union backed regimes like the Derg in Ethiopia, and both sides pursued proxy wars in the Congo, Angola, Algeria etc. making conflicts bloodier and more tragic than they otherwise would have been.

It is critical to avoid this happening again. Africa must be truly unaligned, which means having cordial and open relations with everyone but not being a formal ally of anyone beyond the Afro-Caribbean bloc that would put Africa in the cross hairs of the global powers. Not only will this maintain our neutrality when conflicts break out among the global powers, it will prevent Africa from again becoming a theatre for the proxy wars of the great powers, where African blood is spilt to achieve the strategic goals of foreign powers. Finally, true neutrality will enhance our voice on the global stage positioning the continent as an honest, neutral voice in global affairs, something that has had value throughout history.

3.   Strengthen African Multilateralism

In his speech at the UN Security Council after the Russian invasion of Ukraine the Kenyan Ambassador stated that “Multilateralism lies on its deathbed tonight. It has been assaulted today as it as it has been by other powerful states in the recent past.”. Between Trump and Russia’s recent actions, global multilateralism is in indeed on its deathbed. However, that does not mean African multilateralism cannot play a significant role. By African multilateralism, I mean a set of norms and ways of engaging with the outside world that are agreed upon through pan African institutions, namely the AU and ACFTA. African states will not agree on everything and have different priorities. If Mali prefers a Russian security alliance to a French one, that is their choice, if Djibouti chooses Chinese economic investment over American that is their decision. However, we should all be able to agree what the boundaries of acceptable behaviour from outside the continent are and a set of measures that should those boundaries be breached can be implemented with wide consensus. Much in the same way that ECOWAS takes measures when there is a coup in their region, the AU or CFTA could impose sanctions (e.g., restricting trade in critical goods) on the offending states.

Doing so would set a tone for how the world engages with Africa and impose consequences for those looking to turn back the clock and act in an “imperial” manner.

4.   Unite on core issues

Though not every African country will agree on anything there are some things that we can agree on such as:

  • The need to grow Intra-African trade and change the terms of African trade with the wider world.
  • The need to act on climate change and fund resilience, mitigation, and the green transition in Africa.
  • The need to change the international tax system to be fairer.

Around these core issues on which African states agree there is the opportunity to craft a common position and push that on the world stage as one. Building common cause with other nations to drive joint priorities. Focus on these core issues where global powers cannot play divide and rule would further entrench Africa’s position as a serious player on the global stage.

This time must be different

The Russian invasion of Ukraine is the death knell of the Post-World War 2 and Post-Cold War settlement that has given the world an unprecedented period in which states rarely went to war with each other.

As the new multipolar world order emerges and takes shape, Africa cannot let what happened in the past happen again. We must make sure that Africa is not a venue for exploitation, extraction and proxy wars. This will require deliberate, smart, coordinated and flexible foreign policy from African states. Acting in concert where possible, and where not, within an agreed upon set of norms and practices. If we do so, Africa can ensure that not only does it navigate the new global reality but helps shape the terms of this new reality in are

Africa needs its own tax deal  

“African leaders have to wake up and tax those who have money” – Winnie Byanyima executive director of UNAIDS 

On 8 October 2021, 136 out of the 140 countries involved the negotiations signed an agreement to tax multinationals. On the surface this seems like a significant achievement. Getting broad international agreement on anything beyond platitudes is almost impossible these days, let alone where the USA agrees to it. However, like most global deals the primary drivers of this deal (and thus the interests it serves) are those of the developed world (particularly the USA) where most of these large multinationals are from.  

Interestingly Kenya and Nigeria have refused to sign the deal, both are not thrilled by the comparatively low tax rate agreed upon and the removal of policy making space that the deal implies.  

Taxes are critical, especially for African states that have a myriad of needs to finance. Africa, does need a multilateral tax deal, but not this one. Rather, what the continent needs is its own deal, that suits Africa’s interests rather than those of Washington and Brussels.  

What is the deal and why is it a problem  

The global tax deal known as the ‘two-pillar solution,’ was initiated by the Organisation for Economic Co-operation and Development (OECD) and aims to counter tax evasion and avoidance, which are increasing under the digital economy. The two pillars of the deal are simple: 

  1. Companies with a turnover of more than $17bn and a profitability of more than 10% will have to pay their taxes in the country where they make their turnover,  rather than in the country where their head office is located. 
  2. In addition, a minimum tax of 15% on the profits of companies with a turnover of more than $850m will be introduced to limit global tax competition 

The official OECD statement, says that the aim is to “reform international tax rules and ensure that multinational enterprises pay their fair share of taxes wherever they operate.” 

However, there are some significant issues with the deal which are particularly problematic for Africa and are why Nigeria and Kenya have refused to sign on.  

  • Most African countries have tax rates that are higher than 15% (in Kenya and Nigeria it is 30%). This reduced rate would reduce revenue collected on corporate profits.

    average corporate tax rates in Africa and select markets https://home.kpmg/za/en/home/services/tax/tax-tools-and-resources/tax-rates-online.html

  • The 15% rate would either create a two-tier tax system where big multinationals have 15% rate and local companies have the higher national rate. Or it would force countries to bring their tax rates down in line with the OECD, again forcing them to give up significant revenue. 
  • The OECD tax deal “will require all parties to eliminate all taxes on digital services and other similar measures relevant to all businesses and commit to not introducing such measures in the future.” This closes the policymaking space for African countries in the ICT sector which is impacting (and making money from) almost all the other parts of the economy. Furthermore, as the Financial Transparency Coalition points out “ Oxfam estimates that 52 countries in the global South are likely to be net payers in this deal as a result of having to end their digital taxes. They would be forced to do this in exchange for an uncertain revenue flow from a deal that will come into effect in 2023 at the earliest and is not due to be renewed before 2030.” 

In short, this multinational tax deal does not work for Africa, it will limit our ability to collect revenue from large multinational companies, particularly the behemoths in the ICT sector.  

Bucking the trend 

If the global multilateral tax deal does not work for the continent, then the logical thing is for Africa to forge its own deal. The size, growth and demographics of the African market are significant enough that the big multinational companies (especially tech) are investing heavily on the continent. Pledging billions of dollars in investment, building billion-dollar fibre cables, and investing in new African headquarters. Subjecting these large multinational companies to a consistent tax regime across the continent would not fundamentally alter the attractiveness of the African market or endanger investment or jobs.  

Luckily, for the last several years Africa has been forging the continental free trade area, and this can be used to develop and implement an African multilateral tax deal, that enables the continent to raise more revenue, evens the playing field for African companies and preserves the continents policy making space and this can consist of 3 key elements.  

  1. Instead of the 15% proposed by the OECD a 25% tax on multi-national companies of more than $17bn and a profitability of more than 10%. African countries would be allowed to charge lower rates for companies whose beneficial ownership is located in Africa.  
  2. A climate tax on imported goods that have a high carbon footprint in their production. Rather than begging the developed world for funds for the green transition and to mitigate the impacts of climate change, it can be raised by taxing carbon imported onto the continent from those same countries.  
  3.  A tax on transfer pricing to prevent companies (especially extractives companies) from using clever accounting to minimise their tax exposure on the continent. 

African taxes in African markets 

As I have written about before Africa needs tax revenue, if we are ever to throw away the begging bowl and end the dependency on aid, we must be reliant on revenues raised on the continent. Like Kenya and Nigeria, I do not believe that the OECD tax deal is good for the continent. It limits our ability to raise that much needed revenue and limits the policy space available to make tax policy in the future in effect outsourcing African tax policy to the developed world.  

What is needed is for Africa to forge its own multilateral tax deal, one that is aimed at raising revenue, stopping tax evasion and illicit flows out of the continent, and protecting and enhancing African enterprises. This will not be easy, African countries have found it extremely hard to develop and implement multilateral tax policy. This does not mean that it is not worth trying.  

Using Africa’s black gold to fund a green future 

“Stabilizing the climate will require strong, rapid, and sustained reductions in greenhouse gas emissions, and reaching net-zero CO2 emissions.” highlights IPCC Working Group I Co-Chair Panmao Zhai.  

The latest Intergovernmental Panel on Climate Change (IPCC) report makes for sober reading. The climate crisis is unequivocally caused by human activities and is affecting every corner of the planet’s land, air, and sea already. The fact sheet on Africa does not make for pleasant reading we will experience more heatwaves, more floods, more unpredictable weather, and more extreme weather events. The whole continent is vulnerable, our largely rain-fed agriculture, underdeveloped infrastructure, existing inequalities, and poverty will all amplify the impacts of climate change that are now certain.  

In a previous article, I advocated that we use climate change as an opportunity to harness science and technology and equip our farmers with tools to feed the continent in an era of shifting weather patterns. To leapfrog fossil fuel energy and lay the foundation of Africa’s economic and social development on green sustainable energy. 

This is still the case; however, not only must Africa innovate to mitigate the impacts of Climate change on the continent, but we also must fund it. The global commitment to provide US$ 100 billion a year is falling woefully short. Furthermore, as the Coronavirus pandemic has shown, when crisis strikes, Africa is left to fend for itself. As the impacts of climate change become more pressing and deadly, the rich world will focus increasingly on solving their own problems just as they have done with Covid vaccines.  

Thus, Africa must develop a financing strategy not based on the generosity of the rich world, the philanthropy of global billionaires, the whims of development banks or the iniquity of global markets. To do that Africa will have to make use of its own resources, and, in a delicious irony, Africa’s black gold, the oil, gas and coal can be used for this purpose. Not by burning it or digging out of the ground and selling it. But, by leaving it where it is and selling it as a carbon offset.  

The Financing Dilemma  

Because developing countries would be hardest hit by climate change yet have the least resources to invest in mitigation measures or invest in clean energy and sustainable solutions to our development needs. The developed world committed to mobilizing the finance necessary to do this. As a result, at COP16 the developed world agreed to an Accord, that states that: “developed country Parties commit, in the context of meaningful mitigation actions and transparency on implementation, to a goal of mobilizing jointly USD 100 billion per year by 2020 to address the needs of developing countries”.  

This goal has never been met. And with the impacts of the Coronavirus pandemic and the resources devoted by the developed world to their own needs, I am not hopeful that funding will materialise. Furthermore, the financing solutions being proposed are the same old, same old of “mobilising external financing and private-sector solutions,” which can be translated as getting money from donors and banks. That’s a formula that has not worked for 70 years.  

Using our black gold 

Africa’s natural wealth, especially oil has often been more of a curse than a boon, added to that, it is humanity’s use of those hydrocarbons that are the cause of the problem we find ourselves in. Thus, Africa finds itself with an odd problem, it would be mad not to exploit these resources, they are a vital source of income. However, it is that very exploitation that will come back and bite us as a cause of climate change.  

It is estimated that Africa has: 

  • 499 billion MMBtu (Metric Million British Thermal Unit) of proven gas reserves (7.1% of global proven reserves), 
  • proven reserves of 125 billion barrels of oil.  
  • Proven reserves of 36.7 billion metric tonnes of coal  

At the time of writing, the price of oil is US$ 68 per barrel, US$ 3 per MMBtu of Gas and US$149 per tonne of coal. Meaning that Africa has about 8.5 trillion dollars’ worth of Oil, 1.4 trillion dollars’ worth of gas and 5.4 trillion dollars’ worth of coal. While that may be their value, to get their true value you would have to factor in a heavy discount for the cost of developing the fields/mines, the profits of the oil, gas and coal companies and the environmental degradation and impact of their extraction. Beyond that, as the world moves away from hydrocarbons, these assets will become increasingly stranded as the world strives to buy less of them.  

Selling the oil without burning it  

Increasingly companies and governments are investing in carbon offsets and offset credits. A carbon offset broadly refers to a reduction in Green House Gas (GHG) emissions – or an increase in carbon storage (e.g., through the planting of trees) – that is used to compensate for emissions that occur elsewhere. A carbon offset credit is a transferrable instrument certified by governments or independent certification bodies to represent an emission reduction of one metric tonne of CO2 or an equivalent amount of other GHGs.  

The oil, gas and coal under African soil have an approximate equivalent of 53.7 billion and 114 billion and 91 trillion metric tonnes of carbon dioxide respectively1. Currently, carbon offsets sell at $3-5 per tonne, using a conservative price of $3 Africa’s oil, gas and coal assets would be worth $275 trillion. That may seem low but the price of carbon offsets is expected to rise to between $20-$50 within the next 10 years bringing them in line with the oil prices which would more than double those estimates.2 

Thus, rather than developing these assets, Africa can sell the potential carbon emissions as carbon offsets. Africa would sell the potential emissions from all that oil, coal and gas to companies and governments that want to emit carbon. This would do three crucial things. First, it would lock that carbon in the ground, if we are ever going to solve the problem of climate change, we must stop burning fossil fuels. Even though Africa has contributed the least to the current problem we can make sure we never become part of the problem by leaving that carbon in the ground. Second, it would give Africa an income stream that is wholly owned by Africa. No oil companies, no production sharing contracts, no royalties, and no drilling and mining projects that destroy ecosystems. That money can be spent financing Africa’s own green and sustainable industrial revolution and mitigating the effects of the damage already done by investing in our agriculture and infrastructure to ensure that they can cope with a changing climate. Third, it would remove our dependence on the generosity of the rich world, debt, or capriciousness of the market, giving Africa true ownership of its climate response.  

To make this a reality much smarter people than I would need to figure out key elements of turning our hydrocarbons into carbon offsets.  

  1. A mechanism for certifying hydro-carbon reserves and quantifying the potential carbon emissions.  
  2. A pricing strategy that does not put too many offsets onto the market at the same time to ensure that viable prices are kept.  
  3. A verification and enforcement mechanism to ensure that any reserves sold as an offset are not exploited and sold by those looking to have their cake and eat it too.  

Keep it in the ground  

Africa has contributed the least to climate change, yet we will bear some of its worst consequences. We cannot rely on the rich world to live up to aid and financial mobilisation promises if Africa is to deal with the dual challenge of climate change. That dual challenge is to ensure that our own development does not contribute further to climate change and that we put in place measures to deal with the consequences of global warming. We are not responsible for the past of others, but we must seize responsibility for our future.  

Selling the potential carbon emissions from African hydrocarbon reserves can be a critical tool in meeting that dual mandate. It will keep the GHG in the ground and maximise Africa’s contribution to ensuring a net-zero world. And it would give us the revenues to fund sustainable development and climate mitigation, on our terms, designed by Africans for Africans rather than at the World Bank or the Gates foundation.  

It may seem crazy, but oil, gas and coal may be just what Africa needs to stop climate change.  

African Crisis Response Policy: Learning from Pandemic

On March 26th Kenya’s President announced yet another lockdown, prompting immediate outcry from wider public, because unlike the first lockdown in March 2020 there were no economic support measures announced to try and cushion people from the impacts of a lockdown. Around the world, including in Africa when lockdowns have been implemented governments have deployed a myriad of support measures to cushion their citizens. The USA has deployed trillion-dollar stimulus packages with cash handouts to its citizens. The UK rolled out a multi-billion-pound furlough program that gave money directly to employers to keep staff on payroll even though they were not working. Around the continent we saw new and expanded cash transfer programs, tax breaks, stimulus spending, food aid and a myriad of programs all deployed to cushion Africans from potentially devastating lockdowns. However, the impact of these programs is not nearly enough to offset the damage done to livelihoods.  

The data shows that in Africa, the measures implemented to control Covid has led to declining employment, livelihoods, food security, and human capital. And it is our poorest and most vulnerable, such as those self-employed in the informal sector. In one study of 6 African countries, up to 76% of people reported a fall in income as a direct result of the pandemic and the measures employed to control.  

Unlike the USA we do not have two trillion dollars to throw at the problem. Furthermore, Africa is particularly susceptible to disasters, both natural and man made in the last five years we have seen an Ebola epidemic, Covid-19, locust invasions, devastating tropical storms, drought, floods, and landslides This means we must become innovative This means we must put in place mechanisms and policies that can respond to a crisis effectively while minimising their impact on the livelihoods, health, and security of Africans. It should not be about saving something impersonal like the economy but ensuring that people are, as far as is possible, able to continue with their lives.  

Building crisis response systems  

What should these crisis response systems that we need to build look like.  

1. Starting from the bottom  

For any crisis whether it is a pandemic, flood, drought, locust invasion etc. Its epicentre will be at the grassroots and that is where a response mechanism must start. The foundation of a crisis response system will be a community level mechanism that is capable of three things. First, engaging with its community effectively this is critical where the public will need to be educated, informed, or alerted during a crisis. Second, it must be capable of keeping up to date information that can be utilised for informed discussion making. We all now know about test and trace, but being able to identify, track and record is critical for tracking disease outbreaks, victims of natural disasters, pests that decimate crops etc. Third they should be from the communities they are serving, ideally even chosen by those communities. Trust is critical in community engagement, if that engagement is to have any impact having people from those communities who understand the nuances and dynamics of those communities and can speak to local context is critical.  

2. Speaking to the public  

In a crisis effective communication to the public is critical. You need to impart information that explains what the crisis is and what to expect, what measures people need to take to protect themselves or others, what the government is doing to help, and how people can access that help. African governments are particularly bad at this. The tend to speak down to their people, condescendingly giving orders rather than explaining the issue and asking for cooperation. Furthermore, communication tends to be sporadic, uncoordinated, and confusing.  

Communications must be done in a way that engenders trust and encourages people to respond in a way that reinforces the public good (e.g., wearing a mask). To be prepared for the next crisis we must put in place communications systems that can meet these requirements. Assess how people get information during crises and identifying who they trust. Then putting in place systems that during a crisis can engage and inform people and institutions so that the information put to the public from the government via traditional (e.g., the official spokesperson) and non-traditional (community workers, religious institutions, schools, etc.) is one and the same and is given in as broad and often a manner as possible. These systems and processes can be activated during future crisis and emergencies to engage and inform in a timely and effective manner.  

3. Supporting livelihoods  

As the numbers show, the biggest impact of the pandemic on the continent has been on livelihoods, and many African governments have implemented measures aimed at cushioning their citizens. However, responding to the crisis after it has happened is often too little to late. What’s needed is the development of flexible livelihood support mechanisms and plans designed for the specific African context. This could consist of social safety nets which I have written about in detail here. But beyond that we must look at how our economies function and the critical activities that we must endeavour to keep running to preserve livelihoods. Which means looking at things like markets, transport and logistics, and informal trades, talking to the people who utilise and rely on those things and collaboratively developing plans that would enable them to stay open and function during crises. How do we keep markets open during a pandemic, do stall owners, sellers and buyers understand sanitation requirements and do they have access to water and sanitation supplies? In the event of floods, which roads are most likely to be washed out, what can we do now to mitigate that. When Malawi first introduced a lockdown in April 2020 they faced an immediate backlash and protests from informal traders precisely because they had not thought of these questions. This is not Europe; people cannot simply stay home when they and their families depend on their ability to leave the house and earn a living. This could have been avoided entirely if the government had rather than copy what everyone else was doing stopped to look at its own context, talk to its own people and produce a relevant solution. We can do this in advance, it wont cost much and resilience we build into our economies will save lives.  

4. Working together  

One of the things that I have been most proud of as an African during this crisis has been the way in which many African states and institutions have worked together. The AU and the Africa CDC have been at the forefront of this. Coordinating resources and expertise between states to improve testing and surveillance, developing a common procurement portal so that African states could pool resources and get the supplies they needed during those first critical months, and setting up the AU’s Vaccine Acquisition Task Team (AVATT) to acquire and distribute vaccines on the continent. The cooperation and African multilateralism has been fantastic, but it could and should have been better. How can the AU, Africa CDC, EAC, ECOWAS, SADC etc. learn from the coronavirus pandemic to set up mechanisms that can respond to future crises. This pandemic has shown us that when push comes to shove America, the UK, Europe, China etc. will put themselves first. Hoard vaccines, restrict exports of critical supplies, corner the market on PPE, testing reagents and pharmaceuticals. As I have written about before the charity of other is not something we can rely on in global crises We can only overcome that by working together, agreeing in advance that when the next pandemic, natural disaster, global financial crisis, famine, flood, or even massive solar flare happens this is how we will cooperate. Most critically, we must share information, coordinate actions, where possible pool scarce resources and most importantly act with one voice on the international stage.  

Conclusion  

The Coronavirus pandemic has taught Africa several things.  

First, we cannot rely on the rest of the world to help in a crisis especially when they too are affected. As Africa has struggled to acquire the resources to fight the pandemic and the vaccines to end it the developed world has hoarded them. As a result, Africa runs the risk of becoming the pandemic continent exposed to new strains ostracised by vaccine passports. 

Second, we cannot simply borrow response mechanisms from others and implement them without thinking about our own unique contexts. How does a lockdown work in a slum? How does the informal sector “work from home”? The answer is they do not. And we must develop mechanisms that work for us and do not do more harm than they are trying to prevent.  

At the start of May, Kenya’s president announced an easing of the lockdown as the 3rd wave of Covid-19 eased. Yet a couple of weeks later, the ministry of health is warning about a 4th wave of Covid-19 in July. Kenya’s cycle of outbreak spike, lockdown and economic pain is set to continue.  

As the Kenyan example shows, the most important lesson is that there is no substitute for preparation. The pandemic caught the entire world by surprise and Africa must ensure that it does not happen again. Africa will face many crises in the near future and the only way to make sure those crises do not endanger the development of our continent is to put in place policies that give us the tools to mitigate their impacts and bounce back stronger.  

 

Charity is not policy.

Our donors, who art abroad, hallowed be thy purse. Thy aid come in dollars and pounds. Thy will be done in our countries, as promoted by Bono. Give us this day, our yearly funding. And lead us not into self-reliance. But deliver us from ourselves. For thine are dollars, the pounds and the euros, forever and ever. Amen – Elnathan John – Becoming Nigerian: A guide

On the 24th of February Ghana became the first country to receive a shipment of Covid-19 vaccines through the multilateral Covax facility. Throughout the pandemic (and one could argue throughout the post-colonial period) Africa has been the worlds charity case. Asking for and receiving billions of dollars of donations of PPE, sanitation supplies, and now vaccines. While all of this is lovely it is highly problematic. Relying on the generosity of the developed world to help us respond to crises or define our development agenda is tantamount to giving up our agency over those same issues, and it allows our political leaders to outsource responsibility for development or crisis response.

While the lack of vaccines, testing capacity, PPE is blamed on hoarding by the rich world, which is true, it should also be blamed our own inability to manufacture vaccines, testing materials or PPE. This is down to the bad leadership which outsourced development policy to those, with money and good intentions with pet issues, those who think that intellectual property is more important than responding to a global pandemic.

As millions around the world get vaccinated and Africa, reliant on the charity of others gets left behind to become the Covid continent. Hopefully, it brings us to the realization that charity is not policy. Over the last year, I have devoted much (virtual) ink to looking at how Africa could re-imagine capitalism for itself, forge a post-pandemic vision of development, stimulate our economies and measures we could take to respond to the crisis. All of that is useless, if we do not take responsibility for our own development and recognize that charity is not policy.

The problem with charity as policy

The problems associated with development aid and assistance charity in Africa are well documented. The creation of bloated self-serving bureaucracies that have little or no impact while allowing ex-pats to live charmed lives on the continent. Trillions of dollars spent with little to show for it. The self-serving nature of most spending which is spent on consultants and companies from the originating country. The use of aid to push various geopolitical agendas and to buy the support of African governments. However, this is not the most corrosive aspect of aid and charity on the continent that comes in two forms.

First, it robs us of our agency. Our development agenda is decided in London, Berlin, Washington, Beijing, and Geneva, in board rooms at various foundations and charitable organizations. It rarely has anything to do with what the “targeted” African communities actually want or need. Should massive infrastructure projects be the focus of our development spending, maybe, or maybe not, but that agenda was driven by the multilateral development organizations. The various development fads of microlending, SME/entrepreneur/youth/gender empowerment, digital identity etc. have all primarily come out of western research and institutions. If African development is not driven by the stated wants needs and aspirations of its people, then it does not serve them but the agenda of others. Charity serves the agenda of those doing the giving, not the receiving.

Second, aid and charity enable governments to outsource their responsibilities. Why should the Nigerian government bother to provide real services to the people of the oil-rich Delta region when the Oil companies will spend billions in building schools, clinics, and roads as part of their CSR. Why bother devoting real resources and policy to healthcare, health research and public health finance if the Gates Foundation, US-AID, The Wellcome Trust, and other donors are all pumping money into it. When you outsource responsibilities, you lose control of them as others decide what the focus of the money will be. Thus, our health systems have severely undeveloped but critical elements (like blood services, non-communicable disease prevention, mental health treatment, pharmaceutical research development etc.) because donors have other issues (and more often specific diseases or issues) that they care about.

The impact of this is all too clear to see. Development when funded by aid and Charity is done to us rather than by us. And, when problems that are not a priority for donors, like a global pandemic, come to the fore we find ourselves without the capacity to properly deal with them.

Conclusion – taking back our agency

After its independence in 1947, India made a very deliberate choice, facing serious health challenges among its large population, one of the critical things that India needed to vaccinate millions of people against TB, Smallpox, Polio, and other infectious diseases. However, at the time, much like Africa today, India was reliant on the importation of often expensive pharmaceuticals and biomedicals. The Indian government very deliberately set about investing in indigenous pharmaceutical companies, enabling them to build up R&D capabilities and most importantly the capability to produce pharmaceuticals in India. By the 1990s when India’s economy was being opened up these companies combined rapid growth in their own large domestic markets with global partnerships and continued investment and supportive policy from the government to become global players. The greatest example of this is the Serum Institute of India (SII), set up in 1966 to produce immunobiological’s, it was a beneficiary of the Indian government’s policy and today is the largest vaccine producer in the world. The majority of the Covid vaccines delivered to Africa are made by the SII.

Doing away with charity as policy means taking a lesson from India’s book. Making, deliberate choices to invest in areas that will wean us off dependence. It may take us 20 years to build up the infrastructure to produce our own vaccines, but it will mean that the health of our people will no longer be reliant on whatever others have to spare to deploy programs like COVAX or GAVI.

This thinking isn’t just limited to the health sector but will require us to make very deliberate choices and investments in the design and deployment of our education systems, climate policy, food security, transport, and science and technology. Not just for jingoistic, populist reasons that sound good on the campaign trail, but to free critical aspects of our development from whims of charity and geopolitics and put them in the hands of Africans. If we do not, when the next crisis rolls around, Africa will once again find itself left behind, begging bowl held out dependent on the charity of others.

Re-invigorating the pan-African dream through migration

By definition a foreigner is a person who lacks some fundamental right to make claims on the territory in which they are foreign. Today, too many Africans are unable to make these claims of their own countries. Too many Africans are still not at home in Africa. – Nanjala Nyabola (travelling while black p.134).

There are a few African history accounts on Twitter and Instagram and I often find myself scrolling through pictures of the heyday of pan-Africanism. That moment in the fifties and sixties when we were all fighting the same struggle. When we were debating what the post-colonial political economic and social landscape should look like. That moment died as African leaders became more concerned with consolidating power within their own borders, and our unity fell prey to Cold War power games.

Today the pan African dream is distinctly economic and commercial. At its centre is the African Continental Free Trade Area (CFTA) meant to bring the continent together as a single trading bloc. This is aimed at driving economic development through increased intra African trade. While this a laudable goal and one which I wholeheartedly support, the narrow economic vision of a pan-Africanism driven by trade is missing key elements. And in doing so it is somewhat hollow, appealing only to economists and business leaders rather than to the people it is intended to benefit.

The first element that the CFTA is missing is that for the real value of economic development to be realised the CFTA must be structured for MSME’s, small traders and entrepreneurs to take advantage of. They are the heart of the African economy and if free trade merely benefits big corporate entities it will be a failure. This something I have written about in detail here.

The second and most critical element missing from the equation is people. Africa’s Development must have her people at its centre. And the CFTA cannot just be about the movement of goods and capital it must also be about the movement of people. From an economic perspective restricting the movement of people restricts trade in services (which people perform), capital (which people own) and goods. But more fundamentally if Africans cannot freely move around our continent to discover each other, our cultures, common challenges and opportunities then free trade will be meaningless.

The European example

The 1957 Treaty of Rome, which established the European Economic Community (the forerunner of the EU in Article three says: “The activities of the Community shall include… the elimination, as between Member States, of customs duties and of quantitative restrictions on the import and export of goods…; the abolition, as between Member States, of obstacles to freedom of movement for persons, services and capital.”

These are widely known as the four freedoms, freedom of movement for goods, services, capital and people. The framers of the EEC coupled the economic with the socio-political because they correctly judged that the ability of people to move and earn incomes through the community not only increased incomes, but it created human links and bonds that reinforced those created by trade and in time has allowed for the construction of an EU wide political infrastructure.

As we design the CFTA we must learn from the European example and adjust it to our own needs. We are not looking to create a political superstate but looking to drive commerce, the exchange of ideas and increase the self-reliance, prosperity, and well-being of the continent. This requires people, not just a lack of tariffs.

Integrating and enhancing African migration

First off, it’s important to point out that African’s already migrate, and over 50% of that migration is between African countries[1], largely driven by peoples search for jobs and opportunities. On top of this the value of remittances by African migrants surpasses official development aid that African countries receive. In short African’s migrating throughout the continent are already a key driver of our economies, more important than the aid we jump through hoops to get, however much of this is still limited.

It can be notoriously difficult for African’s to officially travel within Africa. A combination of bureaucratic ambiguity, inflexibility, the cost of visa’s, flights, and the difficulty of obtaining official documents, make it easier, tragically, to go to Dubai than it is to go from Nairobi to Johannesburg.

Figure 1: source – the Africa Visa Openess Report 2019 https://www.visaopenness.org/

Cutting through this process is critical to driving to driving economic, social and cultural flows across the continent. Visa free or short-term visa’s on arrival are the simple answer, letting African’s travel hassle free across the continent on a short-term basis will act as a critical lubricant.

It’s not just enough to make it easier for Africans who travelling on the continent for short durations. Longer term migration, people moving from country on a more permanent basis to live and work is a key element of Intra-African migration. Unfortunately, it is often badly mischaracterised, with immigration demonised, where migrants are accused of bringing crime, and stealing jobs. And across the continent from the Nigerian expulsion of over 2 million Ghanaian migrants in 1983 to the xenophobic riots that have been seen in South Africa in the last several years. Contrary to the belief that migration contributes to growing unemployment in destination countries, UNCTAD found that migration in Africa is not associated with unemployment rather the contribution of migrants to GDP was measured at 19% in Côte d’Ivoire (2008), 13% in Rwanda (2012), 9% in South Africa (2011) and 1% in Ghana (2010). And, crucially, increased immigration in African countries occurs in parallel with improvements in education and health, especially for girls and women. In short facilitating and welcoming long-term migration from other African countries is good development policy. Thus, rather than demonising migrants, or playing into fears of the other by taking hardliner anti-immigrant positions. African policy makers need to put in place workable mechanisms to make intra-African immigration easier. Clear and easy mechanisms for obtaining work permits and residency visas would be at the core legalising much of the immigration that already takes place. And by legalising it, migrants can come out of the informal economy and fully contribute to the communities and societies in which they live.

Beyond the purely economic considerations, the building of stronger cultural, social and political ties across the continent will only happen when people can build those ties in person and there are policies that we can and should put in place to facilitate that such as:

  • Tertiary education exchange programs, that will bring our students, academics and researchers together.
  • Teaching African languages in schools.
  • Funding of cross border infrastructure to facilitate trade and movement
  • Implementing the Single African Air Transport Market to make air travel more affordable and accessible on the continent.
  • Removal and/or lowering of telecoms roaming fees and cross border bank charges.

Migration as development

The evidence from the effects of intra-African migration overwhelmingly show that it is positive for both the origin and host nations. The innumerable benefits that come with African’s moving, engaging, working, and doing business around the continent make it a critical and easy development policy. Furthermore, as the world enters a more fragmentary period, many policy makers have realised that it is critical that Africa come together to forge its destiny and prosperity. This is starting to happen again, particularly thorough multilateral African initiatives such as the CFTA for trade, and the Africa CDC for combating health challenges. However, the pan-African dream will never be realised through a set of narrowly focused initiatives, without a common connecting thread. That thread is people, African’s freely moving and migrating throughout the continent building ties and lives. That will be critical driver for development and cooperation across the continent. And as Nanjala Nyabola points out in her fantastic collection of essays on “Travelling while black” the pan-African dream whether cultural, political or economic will never become reality until we, accept each other as Africans rather than foreigners to be kept out.

[1] The Economic Development in Africa Report (EDAR) 2018 – Migration for Structural Transformation

Forging social safety nets for Africa

Social safety nets are often seen as luxuries for rich countries. However, as we Kenyans say “2020 has shown us things”. Across Africa, the coronavirus has seen governments across the continent implement a raft of measures to cushion their citizens against the socio-economic impacts of the coronavirus pandemic. For instance, Togo rolled out an expanded digital cash transfer program called Novissi and South Africa has expanded its existing welfare and unemployment benefits system. And these are not isolated policies. Having shown that social safety nets are possible. The question shifts, from can Africa have social safety nets, to what should longer–term African social safety nets, that alleviate poverty and confer dignity look like. 

The need for a social safety net  

 The world of work and employment is changing. Formal employment is less common, and most Africans do not earn a living in formal jobs with regular paychecks. The informal jobs and agricultural work that provides the bulk of jobs on the continent often provide uncertain incomes. Compounding this is the fact that African socialism (also known as the black tax) is becoming harder. Incomes are more and more stressed, and it is becoming harder for individuals to extend support to the family, and the community that has in the past functioned as an unofficial safety for many.  

What is needed is an expansion of the African community spirit of Ubuntu to the core of our formal social contract, with the state through well designed social safety nets, and we can do this by designing and implementing sustainable safety nets.   

Defining a social safety net  

 The start of designing a safety net is defining its purpose. Which should be, in my mind, at its core about putting in place a floor beneath which society says its members cannot fall. It is not intended to replace work, or even disposable income, but rather to ensure that people do not fall into deprivation and desperation.  

The second critical issue is simplicity, which covers two key issues.  

1 – Simplicity of targeting. That the people for whom the safety net is intended are clearly defined, e.g. households that earn less than a clearly defined threshold, or even all adults over the age of 18.  

2 – Simplicity of access. A social safety net does not function if the people it is meant for cannot access it. Thus, unlike countries like the USA or UK, we cannot develop notions of the deserving or undeserving poor, which lock millions out of critical support. Thus, the means of accessing these support systems must be easy to understand, easy to find and easy to navigate.  

The third critical issue is the sustainability of funding. This means identifying and defining a long-term funding mechanism. Not a donor or simple year on year budget allocation that is subject to political changes every year. But a dedicated mechanism like a specific tax, or a percentage of royalties from natural resource extraction, will ensure significant funding over the long term. In addition, a broad, sustained funding mechanism fosters a broad feeling of everyone having skin in the game and creates broad social and political support for a safety that will ensure its long-term acceptability and stability.  

Forging the net  

So, with those critical elements in mind, what does an African social safety net look like. Each country would undoubtedly choose its own unique combinations, there are options on the table that are doable and can be made distinctly African. Not copying western systems but shaping them to our needs. Such as a universal health care system based on the provision of quality primary healthcare, that cushions people from the often crippling costs of healthcare and vastly improves the quality of life. Or a basic minimum income that lifts people out of poverty and gives them a basic level of peace and dignity. Or even community/locally based support systems that are run and funded by communities and directed to the things and people that they consider most pressing with central governments providing additional funding.  

Social safety nets are not a panacea for the socio-economic problems that the continent faces. However, they can be an important piece of the suite of solutions that drive our development. But beyond that social safety nets can reshape the relationship between African citizens and their governments. Moving away from the colonial relationship that, persists in far too many countries of the ruler who sometimes hands out goodies to the ruled masses. To one based on the government genuinely looking out for its people, recognizing their dignity, and placing it at the core of our development.  

A new vision for African Capitalism

“Having come into contact with a civilization which has over-emphasized the freedom of the individual, we are in fact faced with one of the big problems of Africa in the modern world. Our problem is just this: how to get the benefits of European society, benefits that have been brought about by an organization based upon the individual, and yet retain African’s own structure of society in which the individual is a member of a kind of fellowship.” – Julius Nyerere

 

Markets are extraordinary things. They can drive innovation, wealth creation, poverty eradication and enable people to express themselves in new and creative ways. However, markets can also be incredibly destructive. The relentless drive for profits at its centre markets often lose sight of the welfare of communities, the environment, and most destructively concern for the wellbeing and prosperity of the future beyond the next quarter or dividend payment.

For the last 30 years, Africa has been subjected to the Washington consensus. Which can loosely be defined as a set of policy prescriptions for economic reform centred on market liberalisation. Africa was encouraged (sometimes forced) to adopt free-market principles and mechanisms in their economies, as the medicine for the economic malaise that plagued the continent at the time. Today after a global financial crisis, the unforeseen consequences of the free market success of globalisation, climate change, inequality and this year a global pandemic. It is clear that the inevitable logic of liberal markets cannot and should not hold.

The current crisis of capitalism is an opportunity, to break free from the unbridled capitalism of the Washington consensus and reshape it into an African capitalism. Which considers the unique structures of our economies and societies, as well as our aspirations. To create markets that enable opportunity, reshape our relationships with global markets and that have limits, on how much of our lives and communities should be monetised.

Africa and capitalism: a troubled history and lessons for the future

For the last several centuries Africa has had a troubled history with capitalism. Driven by western capitalisms relentless drive for profit, Africa has been exploited, a source of slaves, ivory, minerals, gold, oil, and other resources that are fed into the economies of more developed nations. This was the logic that drove the slave trade and imperialism, and it is no surprise that to this day Africa has been unable to integrate into or climb to the top of a capitalist system designed with us at the bottom. These structural issues remain to this day,

Beyond the structural issues, as Mwalimu Nyerere pointed out the modern conception of capitalism has its roots in western liberalism, which is highly individualistic. Communitarian values have deep roots in African societies. Where a responsibility to society as a whole, considerations of the welfare of future generations, the importance of the land and resources it holds are all held as guiding principles.

This does not mean to say the Africans are natural communists or socialists. We have a deep appreciation for the positive power of markets, hard work, individual expression, entrepreneurship and success. Thus, the question for policymakers becomes, not whether we should have markets in the first place. Rather what should those markets look like, how do we shape and regulate them to be the kind of markets we want, that will work for Africans? That magnify those things about markets that we value, but that do not cannibalise the community in the process.

Reshaping Markets

The first priority for African capitalism would be to reshape markets within Africa so that they promote and enable opportunity and competition, that enables African enterprise and livelihoods to thrive.

The first element of this is regulatory. Regulations are often a double-edged sword. First, they can be constrictive. A report by the Africa Development Bank looking at the regulatory environment that African businesses face found that “When asked about the major constraints to their operation and growth,   almost two-thirds of African businesses rate at least one regulatory  issue as a serious concern… Collectively, overall regulatory challenges are perceived as more severe than even infrastructure and access to finance.” African businesses especially small businesses face too many hurdles, thus, we need to redesign our regulatory systems. It is not about cutting regulations as ardent neoliberals have been advocating for years. It is about designing our regulations to fit our business context, which means:

  • Redesigning our labour laws to fit our informal sectors, and gig economies as well as the changing nature of formal employment.
  • SME specific regulatory regimes such as they have in Mauritius and Zimbabwe that make the regulatory regime easier for small businesses.
  • Integrating SME’s and the informal sector into larger policy frameworks such as trade, climate change and industrial policy.

The second is tax. Most African states have complex hard to comply with tax laws, meaning most businesses and people avoid it (or bribe officials too) increasing the tax burden on those that do. Simplifying this is key to easing that burden and creating a fair playing field. More importantly, the tax regime for big corporations needs to be reworked, through lobbying and interest groups larger corporations have carved out a multitude of tax breaks and incentives for themselves. Getting rid of these not only brings in more revenue but stops the big boys gaming the system at the expense of the smaller players.

Restructuring our relationship with global capitalism.

If markets are ever to truly work for Africa, we must restructure our relationship to global capitalism. Which has been structured to extract profits from the continent. Doing this requires a series of actions:

  1. Remaking the tax regime so that foreign corporations cannot minimise the taxes they pay on profits they extract from the continent so that Africa gets its fair share.
  2. Increasing transparency, especially in the extractives sectors, over who owns what. Until we know who actually owns the companies that extract our resources, we will not be able to control them or eventually make sure that Africa has a share of that ownership.
  3. Beneficial ownership laws, that give African’s a share in the ownership of corporations on African soil. Because if we do not own the capital you cannot benefit from capitalism.
  4. Using our voice in global forums to make sure that the issues that disproportionately affect Africa such as climate change and tax evasion, are not only on the international agenda but at the centre of coalitions of nations willing to take action.

Redrawing the boundaries around markets

Public health, public education, public infrastructure, the legal system, the police, public health, national statistics, a clean environment, street lighting, etc. these are all goods that benefit the public. They help form the social contract between citizens and their governments. And for societies in Africa, they are critical, not just for improving livelihoods and cushioning people from poverty. They are important because, through our various communities ranging from family to neighbourhood groups, to church groups, we support each other. What Africa and the wider world have experienced is a simultaneous failure of both governments and markets. Governments have pulled back from public services mainly due to ideological imperatives such as market efficiency (in Africa often imposed as part of structural adjustment or public private partnerships ). And the markets which were supposed to step in, and be more efficient, do so by leaving people out.

The answer is not to let public services decline further or give in to market failures. Rather it is to draw clearer boundaries around where markets should end and where the public good begins. The Coronavirus pandemic has starkly shown up the holes in public health systems, many of which have been caused by years of underinvestment, and shifting of the burden to private healthcare, where the those who cannot pay are underserved.

We solve this by having a clear policy on the boundaries between markets and the public good. By protecting in our development policies and laws the community obligations that we have as the social contract between African governments and their citizens.

African Capitalism

In the era immediately after independence, newly minted African leaders such as Tom Mboya in Kenya with sessional Paper no. 10 and Julius Nyerere with Arusha declaration were laying out political-economic visions to guide their nations. Many of those visions fell to the wayside or failed, for any of a multitude of reasons. But, as the world is at an inflexion point Africa once again has an opportunity to forge a vision of capitalism that that does not eat us for breakfast and then throw us a few coins of aid money to make everyone else feel better. At the centre of that vision should be a rebalancing between markets and the public good. With global powers facing severe challenges at home, Africa has the space to define what its capitalism should look like. Facing mass youth unemployment, untapped potential, and the societal tension it brings Africa has no choice but to redefine its capitalism and right now is a perfect time.