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Africanising credit – Financing SME’s

Agriculture and SME’s (small and medium enterprises) are the backbone of Africa’s economy and societies. SME’s make up to 90% of all businesses in sub-Saharan Africa[1]. In Ghana approximately 92% of all local businesses are SME’s, providing up to 85% of manufacturing jobs in the country and contributing about 70% to the country’s GDP. In Nigeria, 37 million SMEs employ about 60 million people and account for about 48% of the country’s GDP. In South Africa, there are more than 2.2 million SMEs, about 1.5 million of them in the informal sector. As much as governments around the continent are looking to industrialise through attracting investment in large scale manufacturing, we cannot develop without our SME’s. SME’s provide the livelihoods for a significant number African’s and if they succeed, African economies and development will succeed.

However, SME’s also face an incredibly tough time. In South Africa, the Department of Small Business Development estimates that between 70%-80% of SME’s do not make it past their first year. In Kenya, the National Bureau of statistics found that at least 46% of Micro Small and Medium enterprises do not make it past their first year. What is preventing them from succeeding? Among the multitude of factors (some covered previously on this blog), one of the biggest is credit. The London Stock Exchange estimates that African SME’s face a funding gap of at least $140 billion African businesses find it incredibly hard to access credit, and credit is the fuel of the modern economy. Without credit, there is no safety net for businesses and farmers when things get a little tough. Without credit, it’s hard to fund growth and innovation. Without credit most businesses and farmers are limited to subsistence, to just surviving, because to develop we need those businesses to thrive.

Thus, the policy question becomes what can be done to ensure more credit gets to the SME’s. If the financial sector is not fit for purpose, how do we move beyond traditional definitions of collateral and banking to kickstart credit to these key sectors? The answer for many governments around the continent and development finance institutions (DFI’s) has been to try some sort of SME financing scheme such as giving banks money or guarantees to lend money to SME’s. However, this hasn’t worked, thus what’s needed is a new approach, based on evidence that takes advantage of new trends and technologies and thinks beyond banks. If so, the continent may be able to turbocharge their economies by enabling businesses that actually exist rather than those they hope will be created.

Understanding SME’s financing needs

Knowing that there is a problem and understanding the nature of that problem are two different things. Judging by their rhetoric, African governments understand the importance of SME’s to their economies and are more than willing to make commitments to improve their lot. However, before making promises to SME’s and formulating policies on the basis of those promises it is necessary to understand SME’s needs.

Thus, the first thing that African governments must do as they attempt to unlock the financing problem that SME’s face is to talk to SME’s. Understand whether the majority SME’s need financing to fund their day to day operations (working capital financing), credit to invest and grow their businesses, or trade financing to help fulfil orders or ensure that they have sufficient levels of stock. Secondly, governments need to understand how much money different types of SME’s actually require. Understanding the financing needs of SME’s will enable governments to design or enable solutions that SME’s actually need. Third, is for governments to understand the participants in the SME sector. Such as the nature of formal and informal player, the challenges facing SME’s in different sectors such as manufacturing, agriculture or the arts, the region of the country they are in etc. If the rhetoric of African governments is to become reality and SME’s are really going to be empowered African governments would do well to make a good faith effort to understand them properly first.

Beyond banking

As stated earlier many of the efforts to jumpstart SME financing have involved banks, with governments and DFI’s providing lines of credit or guarantees specifically earmarked for onward lending to SME’s. Around the continent there exist a plethora of government-owned development banks, private banks, and funds whose sole purpose is to lend to SME’s and start-ups. What’s clear is that traditional funding models (a bank loan) are not necessarily meeting the needs of African SME’s a report by the London Stock Exchange Group has placed the funding gap for African SMEs at more than $140bn. The report goes on to point out that among the key hurdles to SME’s accessing finance are:

  • Onerous credit checks from banks (especially foreign banks) restrict SME participation as SMEs often lack the track record and meaningful data inputs required.
  • Credit Bureaus (where defaulters are blacklisted) have, rather than de-risking credit, turned into a negative reinforcement tool as smaller companies run the risk of being ‘blacklisted’ if a single loan repayment is delayed.
  • Prohibitive collateral requirements: lenders seek high levels of collateral to mitigate the high risk associated with lending to SMEs

It may be time to think beyond bank loans when we ask how we can provide African SME’s with viable sustainable credit options. Across the continent, digital and mobile-based lenders are helping to fill the credit gap with innovative and ever-changing credit risk models allows them to better understand credit risk. Allowing them to lend to small business owners, traders and farmers to access short term credit. Often referred to as short term credit, this type of lending allows businesses to meet short-term funding gaps. For example, if an agricultural produce trader wants to stock for the day or week, they are limited to buying only what they can afford at that particular moment in time. However, with access to short term credit they can borrow, buy more produce, sell more produce and at the end of the day after paying the loan back they have made more money. This is not an abstract example it happens every day, especially in Kenya where mobile lending is now common. If banks are not willing to fill this gap, what policymakers and regulatory bodies such as central banks need to do is think about how we can we enable digital lenders to better meet the needs of SME’s. What regulations, consumer protections and standards do we need to put in place that will allow this industry to grow sustainably? Not just lending small traders but also possibly to larger SME’s enabling them to meet their own short-term finance needs.

Secondly, governments should start thinking about investing rather than trying to push banks to give out loans. In a previous post urging a rethink of industrialisation policy on the continent, I talked about the U.S. Governments Small Business Investment Company (SBIC) program to facilitate the flow of long-term capital to America’s small businesses. The SBIC either directly invests or facilitates private capital investment into Small businesses. Crucially these investments are long term giving small business the opportunity, capital and time to grow. Though it has lost money on some investments its investments in companies like Apple, FedEx, and Whole foods outweigh any losses made through the profits, jobs, Intellectual property and innovation that have brought trillions of dollars’ worth of wealth to the US economy. African governments must show the same willingness to invest in African businesses as the private sector (banks and investors) have not done so yet and we cannot sit around hoping it will. Public agencies with a clear mandate to invest or encourage investment in SME’s which show potential for growth will have hits and misses, not every investment is a success. But every investment like this is a positive bet in the future of your country and its citizens, it’s a sign to others that there is a path for them too, but most of all it puts public money where it could do real good not locked in a bank vault.

Making things just a little easier

Teddy Roosevelt once said that “Nothing in the world is worth having or worth doing unless it means effort, pain, difficulty.” The same applies to running an SME in Africa. Business is not for the faint-hearted, nor should it be, but neither should it be filled with potentially moveable obstacles that make It nearly impossible to succeed. Africa’s SME sector is astounding. It has survived natural disasters and the disaster that has been government policy and ignorance of small businesses. If SME’s are to not just survive but thrive it will require governments to adopt policies that make things just a little easier for them outside of the easing of access to credit.

The first of those policies is a tax. Africa’s tax systems tend to be overly complex and burdensome. With businesses often having to pay multiple taxes, that they can ill afford. Simplifying tax systems to be coherent and so simple, so that they can be understood and paid easily should be a priority. If not, many SME’s will either avoid paying taxes or struggle under the burden of being law abiding citizens.

Second, trust. A public register where key information about companies is available to banks, lenders, governments, investors, customers, etc. to have some trust in the credibility and trustworthiness of these companies.

Third would by altering our laws, specifically our employment laws to fit the reality of SME’s and labour in Africa rather than acting as if all employers were large corporations. I have written more extensively on that here.

Finally, is training and networking. Facilitating the training around financing, marketing and tax/regulatory compliance could equip SME’s with tools they need to succeed and enable them to make better use of the funds they do manage to get. Networking is simple, merely using the government’s power to bring people together, to bring SME’s, investors, financiers and potential customers together, and letting them do their thing.

Creating the right environment need not be complex, a few concrete policy actions from the government would act as a stimulus to SME’s and those that may provide credit to them, making things just a little bit easier.

Conclusion

SME’s are the lifeblood of African economies. They provide livelihoods to hundreds of millions around the continent, and alongside agriculture, they are the key that will unlock Africa’s economic potential. To do that they will need access to credit. Thus far efforts to improve credit provision to SME’s on the continent have not been as successful as hoped. This calls for some new thinking; thinking based on a deeper understanding of the challenges facing SME’s. New thinking about how we can move beyond the limitations of banks to harness new technologies and approaches to provide credit to Africa’s SME’s. And to Identify and implement the key policy interventions that governments can make to provide the right environment in which SME’s can thrive.

If we get this right, if we can get SME’s to thrive, then Africa Rising won’t be an old meme but a future reality.

[1] https://www.ifc.org/wps/wcm/connect/REGION__EXT_Content/Regions/Sub-Saharan+Africa/Advisory+Services/SustainableBusiness/SME_Initiatives/

Public Service Reform – Making African Governments Work

A key element in development is effective government. Lots of countries around the continent have policies, plans and blueprints coming out of their ears, many of them fantastic. The problem is actually implementing these policies. Furthermore, governments are not just implementing agencies they also provide a range of public services to their citizens. However actually using these services often means navigating a minefield of corruption, bureaucracy and inefficiency that is both demoralising and dehumanising. Effective service delivery is just as important as effective development policy implementation and at the centre of both is the public service and its failings.

This is not a new problem, and over the last three decades, we have seen multiple efforts (usually donor-funded) around the continent aimed at reforming the public service, to be more efficient, effective, relevant and cost less. The problem with many of these efforts is that they are top-down, often designed externally that do not properly consider the people that they are trying to reform or the people in whose name the reforms are being pursued. To effectively reform the African bureaucracies, we have to rethink how we think about public service reform policy.

What is the point?

As with any policy, public service reform must have a goal at its core. Goals that are understandable to the wider public and local in their origin.

Most public service reform efforts are highly technical focusing on cost driven issues around wages, performance tracking and enhancement and efficiency. These things are important, but they are not visible. And when reforms are not visible, they cannot be seen and felt by the public at large, which means the reforms will run into political and institutional resistance. Most studies of public service reform efforts emphasise the need to depoliticise the public service and get political support for reforms. However, while political support is useful it is not a necessary condition for reform. If the reforms are visible, understood and can be felt by the public then political support can be formed from public support rather than the other way round.

With this in mind, it is crucial to ensure that the goals of public service reform are not purely back office, metrics-based ones but goals that have an impact on citizen-facing services. This ensures that you can bypass political resistance and that the reforms are rooted in local concerns.

Reforming bureaucracy is about people

Often, when public service reform is talked about in terms that dehumanise it. It’s about reforming systems, and structures, the target is a faceless bureaucracy, which no one likes. That’s all good and well until you remember that those bureaucrats are people, with concerns and aspirations of their own, families to support and careers they wish to protect. Too often public service reform is something that is done to people rather than with them. If you want your reforms to stick you need to get the buy-in of the people you are trying to reform. The public sector has decades of experience in appearing to comply with or blocking action. If you want compliance and reform, then it requires that reforms be done with the people in public agencies and departments. They must have a voice, feel that their concerns are taken seriously and have the goals of the reforms explained to them. In short, you cannot do public service reform without the buy-in of a key stakeholder, the public servants themselves.

The second area in which public service reform is about people is culture. All organisations and institutions develop a culture, which informs how people view and do their jobs, and the goals of their organisation. The public service has a culture, an ethos. For sustainable public service reform, you need to change that culture and ethos. The first key to that is making the public service something to be proud of. Explain and emphasising the role that public servants play, and its potential to make a positive impact. Working in the public service shouldn’t be something that causes others to roll their eyes or make jokes, it should be something people can be proud of. In doing so you can start to create a new culture of service and excellence, and that is precisely the culture we want in the public service.

Efficiency is fine, results are key, transparency is a must

As stated earlier, often civil service reform efforts focus on efficiency, which is important, but results are key, particularly results that people can feel and see. I know I have made this point previously, however reforming bureaucracy to be more efficient is useless when citizen facing institutions are services are terrible. Thus, efficiency is fine, but visible results are key.

On top of visible results. Public accountability and transparency are key to reform. If the government remains a black box, reforms will never take. In addition, it discourages bad behaviour by making those actors and agencies accountable to the public and their peers.

The best, the brightest… and the youngest

If public service reform has people at its core, the recruiting the right people is critical and recruitment can take advantage of Africa’s young people who are driven to solve problems and build a better future. Taking advantage of our best and brightest, of talented young professionals and university graduates. Recruiting and integrating them into the public, creating a new generation of motivated, professional and skilled public servants who can form the core of a reformed public service.

A great example of this is Liberia. After fourteen years of civil war by the time, Ellen Johnson Sirleaf became president the country was a mess, and the public service was a nearly broken institution. Recognising this, President Johnson started the President’s Young Professionals Program a two-year program “that recruits and places recent Liberian university graduates in important government roles and provides them with training and mentorship as they support the government’s top priorities”. A 2016 report by Princeton University showed that program had been immensely successful, and that “About 90% of the program alumni continue to working government and or are studying abroad on government scholarships. A few fellows have risen to become departmental directors or assistant ministers.” The Liberian example shows that attracting young talent into the public service is not only possible but with the right mentorship and training, they can make a real difference. Around the continent, we produce over 10 million graduates a year, half cannot get a job. While the government cannot employ all of them, the government can hire the best and brightest without nepotism or political consideration but on merit. One feature of public service reform is hiring on the basis of merit, whether it was the introduction of exams in imperial China 2000 years ago or U.S. Civil Service reform in the 1880s. There is no reason we cannot follow suit and recruit the best and brightest of our youth not just to help drive reforms but incubate them for the long-term.

Africanising public service reform

If we want to implement our development programs, we need an effective public service. If we genuinely want public services to be accessible and effective, they do require reform. These reforms must not only cut costs and improve efficiency but improve accountability, transparency, with people, their culture and most importantly results that positively impact the public at its centre. In other words, we need to Africanise public service reform policy itself because after years of trying we have learned that copy-pasting solutions without contextualising them to Africa never works.

Other than a policy aimed at hiring young people, I have tried to stay away from advocating specific policies. This is because while the challenges facing public service reform may be similar in many African countries the local context also makes them wholly different. What’s needed is a policy approach from which solutions can follow. An approach that recognises that public servants are citizens and stakeholders in the process of reform, that the culture of public service needs positive change, that the public needs to see concrete results if they are to support reforms and that transparency is crucial if the reforms are to stick. Despite all the failed attempts at public service reform, I don’t think it’s hopeless, I think we just haven’t tried the right approach yet.

 

Getting African digital government right: Making Govtech work

“For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.” – Richard Feynman

Disruption, the favourite word (and activity) of the technology industry is not just changing the private sector it is also changing government. Technology that has changed the way we communicate, hail a cab, date, manage our finances etc is coming to government. Across the world civil servants and politicians are enthusiastically embracing tech trying to bring the ease, cost efficiency and speed of tech services to public services and information. Driving this change is the rise of Govtech, which we can loosely define as new technologies applied to public services and/or specifically designed for government purposes.

In Africa, Govtech has been seen by many as a way to leapfrog old, corrupt, and sclerotic government systems to deliver services directly to citizens and bring new efficiency and accountability to government procedures and systems. The proponents of Govtech in Africa are right. It has exciting potential to deliver services and enhance governance, and more citizens around the continent are demanding better services, at lower costs with better accessibility. However, the proponents of Govtech must also realise, that for that dream to become a reality, the way governments design and implement these solutions must be grounded in a set of principles and policies that will help ensure that there is genuine transformation and success.

Principles for African Govtech

If you were to formulate a set of principles for African governments looking to use technology, what should they keep in mind? I think there are four basic principles that government should keep in mind when considering tech solutions, to ensure that they do not fall into the trap of overpromising, overspending and under delivering.

  1. Technology is not a magic bullet. It cannot fix broken systems, cultures or norms, rather it is part of the solution. One great is example of this is in action Kenya’s Integrated Financial Management System (IFMIS). It is a set of technology solutions aimed at enabling the government to plan, execute and monitor the public budget on a centralised platform that reliably records all of the financial transactions by government on a real-time basis through a central accounting system. Where it has worked in other country’s it has improved transparency, accountability and helped stop corruption. However, there have been multiple instances where IFMIS has been compromised, broken into, illegally accessed and various transactions executed that have lost the public large amounts of money. Tech alone cannot fix the culture and norm of corruption that plagues Kenya’s public service. If IFMIS had been implemented alongside other anti-corruption efforts and reforms (e.g. proper investigations and convictions, cultural change efforts, training etc) it might have worked. However, by relying on tech alone, the government only ensured that the culture of corruption and the cartels that perpetuate corruption had the opportunity to subvert the new system.
  2. Tech must be married with genuine service delivery – there would be no point in having the Uber app on your phone if the majority of the time the driver showed up late, was a clueless navigator and was rude. Similarly, if governments are going to try and improve service delivery with tech it must be matched with actual improvement in the delivery of that service. If I can apply for my passport painlessly online, then do not make it an excruciating process to go and collect. If I can file my taxes online, then make dealing with tax issues (refunds, fines etc.) just as easy.
  3. It must be designed with African’s in mind – one consistent way in which Govtech in Africa fails is when governments design a solution to be used in a certain way then it turns out people do not use technology that way. It is not enough to copy a system from somewhere else or design a solution for an ideal situation. If you are designing a solution to help farmers access information and market prices make it with the African farmer in mind, who may not have access to a 4G network but uses USSD or SMS based solutions to access information and financial services. Conversely, do not assume African’s are simpletons either, many more farmers have smartphones and data services and that number is growing. In short, do what the best tech companies do, research and know your target audience and if you are making Govtech for Africa it must be designed by or with African’s in mind.
  4. Tech is complicated and expensive and needs project management just like large infrastructure – the great allure of tech solutions is that they are not only are they more accessible they are also simpler and cheaper than complicated bureaucracies. However, this is not always the case, what may seem simple for front end users like us, can be incredibly complex. Such as government portal where I can see and access day to day mundane government services like applying for licences, documents, paying fees etc. A system like this requires a number of different databases to be digitised and linked. A user-friendly web-based portal (that works on phone and computer) to be built and linked with robust security so it can’t be hacked. Real-time integration with government systems so that it can actually process your requests. Hosting and backup. Constant maintenance and patching etc. This is neither cheap or simple, but with proper project management it is entirely achievable

A policy for Govtech

With these principles in mind, it is possible to develop a policy approach for Govtech that African governments could use to separate good projects from bad, ensure that the projects they do invest in have a positive impact and give a boost to the technology sector.

Project management

As per the 4th principle laid out above tech is complicated. To ensure that Govtech projects have a chance at success governments need to invest in acquiring and training the people and skills who can manage tech projects. By manage, I am referring to the ability to assess a problem, break it down into its component parts. Then research, design, develop, test and deploy a solution. All while managing a budget, multiple stakeholders, government bureaucracies and public expectations. Housing these skills within government and empowering them with the ability to help various agencies and departments implement digital projects is key to making this possible.

In Singapore the government created the Government Technology Agency with a mandate to “to create and deliver a citizen-centric user experience that makes things easier”. The agency acts as reservoir of skills and know-how, which all government departments and agencies draw on when they are implementing projects from geospatial mapping, to tax filing, to social security payments. This ensures that every Govtech project is implemented efficiently and effectively and skills and lessons learned from past projects are applied to new ones. They recruit top talent from universities and the private sector ensuring that the country’s best and brightest can spend part of their careers working on solutions with a broad social good. Countries such as Italy, with its famously inefficient idea have taken a similar path creating government Digital Transformation Team that coordinates, develops and deploys Govtech projects across the government. Rather than the current state of affairs in most countries where, each Govtech project is isolated in its own ministry or department, running the risk of running over budget or not succeeding at all, and if it does succeed, that know-how stays stuck within that ministry or disappears entirely from government. African governments should consider doing the same. Recruiting talent from the private sector and the pool of young talented computer scientists and engineers in our higher education institutes. And creating and empowering a core team within the government to assess, drive and coordinate the implementation of digital projects. That, like in Singapore, will be able to drive transformative citizen-centric Govtech.

Smart criteria

Governments do not have infinite resources and cannot fund every digital transformation proposal that comes across their desks. Added to that not everything is ripe for digital transformation and often needs more time and groundwork before they are. What’s needed is for governments to create a clear set of criteria with which they can assess digital project proposals, and which will identify the projects with the best mix of a chance of success and genuine impact. In addition, a clear set of criteria will give government agencies, departments a clear idea of what is required of them and development partners a better idea of what they should be funding.

Incubate

One of the defining features of technology sector in Africa is its ingenuity and adaptability, with innovators across the continent coming up with tech-based unique solutions for the issues that affect them. Why not give them the opportunity to come up with solutions for the problem’s governments across the continent face and reward them if they are successful. In a previous post I advocated for policy that would give entrepreneurs a leg up, the incubation of tech companies and entrepreneurs coming up with Govtech solutions is the perfect opportunity to do so. Why not give local companies or individuals working on a service delivery issue some money and a deadline to invest in developing a solution. Which, if successful (if it works as advertised) they could either sell to the government or give the government a stake in the company, a contract to deploy its solution in the country and a share of the profits if they manage to sell their solution abroad. There will be failures, and that’s all right, as the money would be going into local talent and enterprise. Where there are successes, homegrown solutions to government inefficiencies that make citizens lives easier would be worth their weight in gold and if those solutions are commercial successes the benefits would accrue on multiple levels. Government doesn’t have to do everything, even in Govtech, incubating local innovators and entrepreneurs with a bit of money and the prospect of commercial success would spur private innovation for the public good.

Getting digital transformation right

In Kenya, in 2013 when the current Jubilee administration came to power, they styled themselves as a new digital type of government. They have endeavoured to digitize everything from education, to the land registry, to common government services and even government accounting. Some of these efforts like the e-citizen platform which has digitized a number of common services like applying for various licences and certificates, have been a success making citizens interactions with the government easier. Others like the centralised digital accounting system IFMIS, have not only failed in its mission to improve governance and lessen corruption, it has been used in large corruption scandals. The Kenyan experience points to both the potential benefits and pitfalls of Govtech in Africa. That tech is part of the solution not the solution. Designing Govtech for Africa must be built around that key principle alongside a holistic policy approach to implementation that institutionalises knowledge and skills and lays the groundwork for future innovation.

Applied smartly Govtech can help transform African’s interact with and view their governments. Making the service aspect of public service a reality. To take advantage of this potential, African governments must develop an understanding of the limitations and enablers of Govtech. And put in place the right structures, policies and mechanisms that can identify, develop and deploy genuinely relevant and impactful Govtech, designed around the needs and aspirations of their citizens.

 

Warehousing African development

Amazon has built a trillion dollar business around them, farmers around the world rely on them, modern healthcare would be crippled without them, the manufacturing industry needs them to smooth out production and demand cycles and global trade needs them to work. They aren’t glamorous like railways and airports, nor are they as fulfilling for donors who prefer to build schools or fund feeding programs, but warehousing is critical to modern societies and economies and they will be crucial for the development of African economies.

Warehouses won’t make living conditions or livelihoods better by themselves, but they are a crucial enabler for things that will. What’s needed from African governments isn’t money or infrastructure, but rather the right set of policies that will enable businesses and individuals to build, and use warehouse facilities as they see fit, to the benefit of their businesses, communities, and the wider economy.

More than storage

Most people do not spend much time thinking about warehouses let alone their transformative power. To most of us, warehouses are just storage, inert spaces where goods and commodities are kept either in transit or until they are needed. I thought the same until I learned the role that certified warehouses (warehouses certified by the government or other trusted actor) and storage play in making the world that we live in. Which got me thinking about the role that certified warehouses could play in Africa’s development on several fronts.

Agriculture

The Food and Agriculture Organisation of the UN estimates that sub-Saharan Africa loses about 20 % of its cereals, 40%-50% of its tubers, fruits and vegetables, 27% of its oilseeds, meat, and milk, and 33% of its fish, to post-harvest losses. This is millions of dollars of lost income for African farmers and it is enough food to feed at least 48 million people, equivalent to the population of Angola, Zimbabwe, Swaziland, Namibia, and Malawi all together.[1] A significant contributor to this phenomenon is the lack of adequate and suitable storage for agricultural goods. This forces African farmers to sell whatever produce they can at whatever rates they can get (the much hated farmgate price) or simply to let their produce go to waste if they can’t find a buyer.

Available (within reasonable distance), affordable (reasonably priced) and suitable (the facilities can store perishables goods appropriately), could cut post-harvest losses dramatically, simply by giving farmers somewhere to store their produce. Thus at the most basic level, proper storage ensures adequate food supply and food security. In addition, it could significantly improve farmer incomes as they will be able to store produce and search for the best prices rather than be forced to take whatever is given to them.

However, certified storage can do a lot more than simply bolster food supplies, farm incomes and cut losses. Certified storage can open the door to farmers gaining access to credit, having produce in a certified warehouse is an asset that farmers can use collateral for credit. Smallholder farmers produce almost 70% of food consumed on the continent, an improvement in their productivity would impact on poverty and living standards throughout Africa (something I cover in more detail here).  Providing smallholder farmers with access to credit is essential to unlocking long-term, sustainable gains in African agriculture. Without credit, farmers cannot afford inputs such as quality seed and fertilizer, they cannot purchase or rent tools that increase efficiency and reduce labour costs, they cannot afford training and support services. Certified storage can be the key to unlocking agricultural credit, as financial institutions will have collateral which they can sell if the farmer defaults, and farmers will not be rendered destitute as their primary asset, their land, will not be taken away as collateral. Furthermore, it could allow farmers access to financial instruments that farmers in the west have long had access to such as hedging (locking in a price for the next harvest) and providing themselves with some security.

The third thing certified warehouses can do for African agriculture is enable commodity exchanges, depositing agricultural produce in certified warehouses will allow that produce to be listed on commodity exchanges and traded, enabling farmers to sell their produce to buyers anywhere in their country, region, or even continent, and allowing consumers (through large purchases like millers and supermarkets) a larger selection of producers to buy from and thus a better chance of getting better prices.

Trade

Trade (both domestic and international) relies on finance, specifically trade finance. Formally its where banks and financial institutions provide credit, hedges, guarantees, and increasingly complex structured products to companies and people buying and selling goods across borders. On the informal scale, it’s the trader who borrows a bit of money (usually on a mobile lending platform) which he uses to buy produce or some other goods, which they then take to market and sell at a profit, paying back the loan with interest and keeping their profit margin. Fundamentally, both formal and informal, trade finance relies on trust. A key issue that hampers trade finance and thus trade across the continent is the lack of trust within the African trade ecosystem.

For instance, financial institutions (both big banks and mobile lenders) do not trust warehousing facilities and are thus unwilling to lend with those goods as security. Thus, financial institutions add a significant risk premium (high interest) to their financing which traders are unable to pay, or the few facilities that are trusted can charge exorbitant rates thus raising the cost of trade. Certified warehouses which issue verified receipts of the goods deposited in their warehouse could fill this gap and get rid of this hurdle to trade on the African continent because in the rest of the world this is precisely what certified warehouses do. Like in agriculture, having a place where you can store your goods verified by a trusted actor will kickstart trade by enabling their crucial lubricant, credit.

Healthcare

Markets and economics aren’t the only benefactors of proper warehouses. Pharmaceuticals are volatile things, they are carefully engineered chemical substances which need to be kept at stable temperatures and conditions. They need what’s called a cold chain, which is a series of refrigerated production, storage, and distribution facilities and capabilities. Refrigerated storage is a key link in that chain, as it would allow government and health systems to store medicines, smoothing out distribution chains, making public health campaigns (like vaccination drives) easier and allow health authorities to plan for contingencies, for instance, stocking vital medicines for a possible Ebola breakout. Storage isn’t just about commerce it’s a key enabler for health systems as well.

Warehousing policy

If storage is a key enabler in a number of developmentally key areas the question becomes what’s needed. The first thing that comes to my mind is to stay away from the solution that so many governments on the continent have tried, government-owned and operated storage facilities. Particularly in Africa they have become magnets for corruption and are often neglected to the point that it’s not worth storing anything in them.

The bare minimum that is needed from government is a legally enforceable framework that does two key things. First, it must put in place a trusted regulator who is able to certify warehouses. To be trusted it cannot simply be another government entity it must incorporate stakeholders from the private sector like the stock exchange, trusted multilateral institutions like the AfDB or TDB, independent bodies like central banks and industry associations to ensure that when it does issue a certificate everyone from farmers to banks will trust them. This regulator must have legally enforceable repercussions for those who violate standards and regulations set by the regulatory authority. Trust is not just about having someone in charge whom you have confidence in, it’s the certainty that when the rules are violated, for instance, someone’s goods are stored improperly, that those responsible are in fact held responsible, in this instance all affected parties are compensated.

Second, is that governments must get out of the way and encourage innovation, particularly in agriculture. Where to this day, far too many African governments maintain outdated systems of produce boards whom farmers are compelled to sell to, and control prices and maintain substandard storage facilities.

Third, is to ensure that small farmers are accounted for in any warehousing policy, e.g having a requirement that warehouses devote a certain percentage of their storage space to small farmers, or cater for small farmers at a discounted price (e.g tax-free storage for small farmers)

In an ideal world, African government would go beyond putting in place a trusted regulator and getting out of the way of farmers, they would actively encourage the building the storage facilities. This could take a number of forms that again do not require significant taxpayer investment such as:

  • Making land available to warehouse developers in agricultural areas to ensure that farmers have access to storage facilities.
  • Allow goods in transit held in certified warehouses to be held tax free, to help the free movement of goods, development of commodities markets and encourage trade.
  • Set standards for databases and goods tracking so that all stakeholders will be able to track goods through the certified storage system, thus bringing more trust into the system.
  • Make available guarantees or funding to groups of smallholder farmers enabling them to build their own suitable storage facilities and engage in the market without fear of being taken advantage of.
  • Give tax incentives to developers willing to invest in cold-chain suitable storage facilities that could benefit the health system.
  • Take a holistic view of warehousing aligning it with other development efforts, such as ensuring that rural roads lead to warehouse sites, that electricity, mobile networks, and data cables reach warehouse sites

Conclusion

It may seem odd to focus on something as mundane as warehouses and storage. Unlike other development policies like universal healthcare, infrastructure or police it is not grand and flashy. However, not all of development policy is grand and flashy, often times to make the big things like agricultural reform, universal healthcare or intra-African trade possible, it requires investment in the mundane things, like a policy and regulatory framework for certified warehouses. Proper and certified storage is an enabler for a number of key developmental goals, my hope is that policymakers are aware of this, that if they want the new railways and roads, they are rushing to build across the continent to work and spur a new era of growth and trade they will require humble storage facilities, certifiably trusted and available to all.

[1] http://www.fao.org/africa/news/detail-news/en/c/445333/

Africanising Elections

“There is nothing more dangerous than to build a society with a large segment of people in that society who feel that they have no stake in it; who feel that they have nothing to lose. People who have a stake in their society, protect that society, but when they don’t have it, they unconsciously want to destroy it.” – Martin Luther King Jr.

As a Kenyan, every time I watch our chaotic, polarising, sometimes farcical elections, which usually end up with the same cast of politicians with their tired approaches to development in charge. I ask the same question, I saw in a newspaper cartoon, several years ago. Is democracy bad for Africa or are Africans bad for democracy?

The more I ponder the question the more I realise that the answer is neither, but rather if African democracy is flawed, it is because it isn’t African enough. In a previous post, I wrote about how the argument that democracy does not deliver development is wrong, and that we need to think of democracy as not just elections, but broad and continuous participation in governance by citizens. In this post, I want to address the first part of that argument. Elections are not democracy, but they crucial pillar of democracy, the ultimate decision-makers in our governments are chosen through this process. If Africa is to develop and craft courageous new policy approaches to the challenges of the 21st Century it must solve its leadership problem, and that starts with elections.

Changing how we vote and what we vote for may not only help make African democracy more relevant to the African context but by making representation more diverse we can elect the leadership we need and ensure that all Africans feel like they have a stake in their democracies. Many African states have focused on reforms to other parts of the democratic infrastructure such as separation of powers, an independent judiciary and devolving power away from central authorities. These areas of reform are vitally important and must continue, however, if we do not address our electoral infrastructure the whole democratic system will be fundamentally weak and susceptible to the strongmen, dictators, and tyrants that we need to consign to the dustbin of history.

The problem with African elections

Liberal democracy has its roots in the history of the West. The Athenian idea was that citizens (men at the time) should elect their leaders. The innovation of the Romans separated and limited the powers of the leaders to prevent tyranny. The Magna Carta of England made the king a subject of the law rather than the other way around, and so on. The history of the West is in the DNA of democracy and it is a system which Africa inherited as it shed colonialism and that was pushed by the western powers in the 1990s as many African states were encouraged to make democratic reforms. And, many did so, holding elections to determine who will be running the country.

The problem is, that history and the type of elections they bequeathed, namely winner take all elections are not entirely relevant to African states. Winner takes all elections have a number of negative impacts.

First off because only one man can win (it is unfortunately usually a man) the stakes are so high that people are willing to do anything to win. This usually involves having to raise outrageous amounts of money to run a campaign and then having to make that money back while in office it’s a recipe for corruption. Or employing underhanded tactics such as rigging, voter and opposition intimidation, spreading fake news and refusing to accept the results of elections, fundamentally undermining the system to invalidate their opponents’ victory. Winner takes all elections also tend to leave behind a feeling of division and resentment in ethnically diverse societies. When the candidate you support loses, in societies where voting blocs are often based on identity such as ethnicity or religion you feel like your tribe or clan has lost, leaving you feeling marginalised and much more susceptible to radicalism and open to drastic solutions, such as supporting the overthrow of the government you do not feel a part of.

African countries spend a lot of money on elections trying to ensure they are free and fair, which is all good and well until those expensive elections breed division, corruption and rigging. This isn’t an argument to stop holding elections, rather its an argument to reform elections and electoral systems with more creativity and shaped to the African context.

Changing how we vote – One man one vote, with a twist

Elections are based on a simple principle, that every citizen has a right to decide who runs their country. In most African electoral systems, you only vote for one person, and your vote is counted once. This need not be the case, in democracies such as Australia and Ireland they employ ranked or preference voting systems. Which not only considers the choice of the voter but also their preferences about all the candidates, by having ballots where citizens rank the candidates in order of preference. Thus, not only is your vote cast for your preferred candidate, your preferences live on even if your first choice is not a front-runner.

A simple example of this is to imagine a race for a member of parliament (MP) where there are four candidates. Candidate A wins 40% of the vote, Candidate B 30%, Candidate C 20% and Candidate D 10%. In a first past the post system, which most African countries employ, the candidate with 40% of the vote would become the MP, but 60% of people didn’t vote for them, leaving you with a democratic problem. Does the candidate represent a broad enough cross-section of his constituents? In a ranked voting system, after the first round of counting the candidate who won 10% would be eliminated as there is no mathematical possibility of them winning, but the votes would live on, through whomever the voters have chosen as their second choice. Thus, if half of candidate D’s voter’s choose Candidate C and the other half Candidate B it would now be   40%   35% and C 25%. In the third round of counting you eliminate Candidate C and if his voters express a third preference that is 80% for Candidate B and 20% for Candidate A. They would respectively have 60% and 45% of the vote and Candidate B would be the winner, because more voters expressed a preference for that candidate over the other candidate.

Meaning that to win elections candidates would have to appeal to all voters rather than just a simple plurality. Furthermore, cynical strategies like trying to divide the opposition vote by backing spoiler candidates would backfire as those votes could still eventually count against them. Most important a ranked voting system gives the voters a greater voice and ensures better representation as the candidate who is preferred by the most voters would win, rather than the cleverest campaigner.

Changing whom we vote for – ending marginalisation

As spoken about earlier the diverse nature of African societies, means that marginalisation is not only a possibility it is an unfortunate reality in far too many African states. Minority groups find themselves either completely locked out of the political process or having to become junior partners to larger groups in some form of coalition. This is due to the combination of a first past the post electoral system and single-seat constituencies, where a constituency or district is represented by only one person. There is no reason why this must be the case, why should representation be limited to one specific form, in Germany and Lesotho they employ what is called mixed member proportional representation. Where people cast 2 votes one for a candidate to represent a constituency another for a party that they feel best represents your views. Parties that achieve a minimum number of votes nationally (at least 5% in Germany) get a seat in parliament in proportion to the votes they have received. This allows voters to elect who they think will represent their community best, as well as who they think would do best nationally. In addition, it means that small parties, the ones that represent minority interests, the ones who may not be able to win an individual seat, but can get a share of the national vote are represented and can ensure that those minority voices, which may have been marginalised previously are heard.

Mixed member proportional representation is a way of trying to ensure that representation is as diverse and representative as possible, that the concerns of the big groups do not drown out the concerns and interests of minority groups.

Publicly funding candidates

It is not just enough to change how we vote and what we vote for. To get the kind of responsible leadership we need, we need to give the candidates without the ability to raise huge amounts of campaign cash the opportunity to put their case to the people and that means funding. Some countries on the continent have tried some form public funding for party’s policy in an effort to make political parties less susceptible to corruption. This hasn’t really worked as parties are happy to take whatever cash they can get their hands on, legitimate or otherwise, while candidates who aren’t willing to play the dirty cash game are unable to afford to campaign are either discouraged from running, or get drowned out by their better-funded opponents. Having a pool of public funds which candidates, who meet certain criteria – such as committing to publicly disclose all non-public funding that they receive – can receive would give them the ability to put their case to the public. And it would give the public a choice. Money talks, especially in elections, and should give everyone a voice.

Africanising elections

Prior to colonialism and its practice of centralising power in the state and its chosen representatives, many African societies had consensus seeking, conciliatory methods of exercising power. Chiefs and king (where they existed) were generally not tyrannical autocrats, they were constrained by, and had to listen to their people through various mechanisms (such as Botswana’s Kgotla). Rather than doing away with democracy or allowing its continual erosion on the continent we should instead be looking to strengthen it. Draw upon our socio-cultural history of responsive people-based leadership to inspire an Africanisation of democracy, to make it more relevant and effective on the continent. Doing this requires addressing the issue at the heart of democracy, elections.

The winner takes all, money-fuelled, to-the-death contest that elections have become on much of the continent is problematic as it deepens divisions within society and feeds the cycle of bad leadership on the continent. The three mechanisms suggested here, could have the effect of making every individual vote more meaningful, make elections more inclusive and give candidates from outside the tired mainstream a viable chance to win.

Elections may not be seen by many as a development policy issue, however, I believe it is. It is through elections that we have perpetuated the cycle of bad leadership, that has led to ineffective and counterproductive policy and development outcomes. I have previously written on Africa’s leadership problem and the need for citizens to take more responsibility for and elect and support the right type of leaders. But in order to do so they must have the electoral tools available for them to do so, ranked voting, mixed member proportional representation and publicly funded candidates are tools that not only put more control in the hands of the voting public but also enable diminish the incentives to vote for the devils we know and increase the incentives for a new type of politician to run.

Democracy and elections are loud and passionate, and that is because important things are at stake. Africanising elections means making them more relevant to voters by tailoring them to the societies and realities we actually live in rather than 18th century Britain and America. Better, more relevant, and African tailored electoral systems could mean, better leadership and accountability, which will mean better policy and developmental outcomes, its something worth trying.

African Land Reform: the need for courage, clarity and inclusivity

Land. It is quite possibly the most emotive and explosive political issue on the continent. Today in South Africa, where approximately 67% of commercial arable land is owned by white farmers politics is consumed by the question of land expropriation without compensation to resolve the historical land injustices which have left the majority of the population landless. In Kenya the spectre of historical land injustice and contemporary land grabbing constantly haunts politics. In Nigeria, Benue state has seen conflict between pastoralists and farmers over resources and land. And these are only examples of a continent wide problem, which will only be exacerbated as foreign governments and corporations buy up huge tracts of land on the continent.

The land issue is a difficult and painful one, but from a policy perspective it is not an impossible one. The rise of the East Asian Tigers (namely Japan, South Korea and Taiwan) was built on the foundation of land reform, which sparked agricultural and industrial transformation. With smart policy Africa can untie the gordian knot of land, but to do so policy makers will have to have courage in confronting vested interests, clarity of purpose and be committed to constructing an inclusive settlement.

The East Asian example

African leaders are fond of stating their desire to replicate the rapid industrialisation and development of the East Asian Tigers and have sought to initiate industrialisation and export policies with that goal in mind. However, often glossed over are the policies upon which rapid industrialisation was based, namely land reform. Japan, Taiwan and South Korea all pursued pro-poor land reforms, aimed at giving peasant farmers legal title to smallholder family farms. In South Korea after the Korean war the government redistributed land held by the former Japanese colonial government and obliged large landholders to divest most of their land which was then given to smallholder families. Similarly, in Taiwan in the 1950s the nationalist government redistributed land held by large landlords to smallholders. And in Japan land reform had been doing away with old feudal laws since 1873 but in 1947 they carried out their most radical reform called Nōchi-kaihō (emancipation of the land). 38% of the country’s arable land was purchased from landlords and sold at low prices to the 3 million farmers who worked them. The results of these reforms were revolutionary. In Japan in the decade after the land reform agricultural production increased by 50%, in Taiwan rice yields increased by 60% and in South Korea (after they had recovered from the Korean war) rice paddy yields doubled. This set the stage for industrialisation, as well as providing food security, rising incomes among farmers were spent on domestically manufactured goods which provided crucial demand for emerging industries that later became exporters, increased savings from farmers were used by banks to fund the growing industrial sector, and the increased tax revenue allowed the government to invest in public goods such as education and infrastructure. Land reform was a critical foundational pillar of the East Asian miracle and if Africa is going to try and conjure its own economic miracle it cannot ignore that.

What’s Past is Prologue – inclusive, historically sensitive process

“What’s past is prologue’ is a phrase that Shakespeare invented, over time it has come to mean that the past is a preface to the future, in other words we can’t forget the lessons of history. When it comes to land in Africa, we cannot forget the past, in fact we must actively address it. Any policy that intends to solve the land problem must have as its first action, a process that listens and learns. Listens, to the voices of those who have been dispossessed by colonialism, development, conservation, profit, corruption conflict or any other of the myriad of reasons that African’s have been chased off their land. And learn from that painful past, where possible making recommendations that could provide restitution and at the very least making those voices heard, these stories and the pain of them part of our common history and experience and recommending concrete policy measures to prevent them happening again. Starting a comprehensive land policy with an inclusive process that engages with its painful history is the only way to ensure that the policy does not become just another chapter in the all to often tragic history of land policy in Africa.

Clarity

What are we looking to achieve? That is the question that must be at the centre of land policy and must be answered plainly. In the case of the East Asian Tigers land reform had two clear goals. First to break the power and wealth of the old feudal structures, by doing away with large feudal land holdings. Second to boost agricultural production by giving farmers ownership of the land and the incentives and where necessary help to make their land more productive. What is the goal of land reform in Africa? As with most things on the continent it will differ from country to country, but will most likely be one or a mix of the following:

  • Addressing historical land injustices,
  • Addressing socio-economic inequalities,
  • Relieving social tensions over land,
  • Increasing agricultural productivity.

With an issue like land, ambiguous goals will create outcomes that are both dissatisfactory and ineffective. Whatever it happens to be, the goals of land policy must be well defined. From clear goals, clear policy actions can be extracted. For instance, if the primary goal is increasing productivity, then policies similar to those pursued in Japan where land was redistributed to existing farmers (those with existing knowledge, experience and skills in farming) and they were supported through investment and subsidy programs, would be at the centre of land reform. If relieving social tension is the core goal then alternative modes of land ownership, access and use such communally owned land, trusts etc, would be the focus of your policy actions.

Courage

Courage is not a word you hear often in policy circles, but when it comes to land reform policy in Africa it is a requirement. This is because there are multiple groups who have a stake in land reform and the policy process requires confronting all of these interests, in full recognition that you may not be able to make all of them happy. In most cases there are large land owners who are economically powerful and automatically dislike the idea of land reform as it carries the prospect of reducing their own land holdings. There are the landless and land hungry who by their sheer numbers are the gallery that politicians play to in their hunt for votes, making wild promises or statements that often fuel tensions. In many countries there are pastoralists or nomadic communities for whom access to large tracts of land are vital to their survival. Inclusivity requires listening to all these interests and having the courage to confront the pain of generations. Clarity requires having the courage to set goals and make a clear case for them. Finally, policy formulation and implementation require the courage to actually confront all the interests and politics around land. Most of all land reform requires the courage to acknowledge that we have ignored this vital element of socio-economic policy for too long. Land is the foundation of an economy and society, how you use it and who has it has a massive impact on economic development and social cohesion, and since independence most African states have let rapacious private business and political interests decide those crucial questions rather than come up with a coherent policy.

Land reform will not look the same in every African country, that is why I have not tried to suggest specific policies. We can learn from each other’s experiences and contexts but on our diverse continent, the land question stems from a variety of issues that are not the same across the continent. What is clear, is that across the continent for there to be comprehensive, coherent, beneficial land reform we must be willing to confront the injustices of the past and include everyone in the land reform conversation, we must be clear about what it is we are seeking to achieve, and we must have the courage to confront the vested interests. Doing so would yield some novel approaches to land reform, but they would be effective and set the foundation for fairer societies and economic growth.

 

Seizing Africa’s Climate change opportunity

Saving our planet, lifting people out of poverty, advancing economic growth… these are one and the same fight – Ban Ki-moon former UN Secretary-General

On the 8th October the UN Intergovernmental Panel on Climate Change released a report and  its frightening. The report warns that there are only 12 years for global warming to be kept to a maximum of a 1.5C rise set by the Paris accords. Anything beyond that will radically increase the risks of flooding, droughts, and extreme heat. Keeping warming to 1.5C is possible but will require concerted global action, something that has been elusive thus far.

For Africa the situation is dire, the continent will bear the brunt of climate change. As CarbonBrief  points out the heat waves will get hotter, the rainy seasons will become more erratic and droughts more likely. For a continent largely reliant on rain fed agriculture it means yet more cycles of drought and famine. The implications of climate change for Africa, if we do nothing, will further entrench poverty for another generation, and displace millions creating climate refugees.

However, this does not need to happen. Climate change is not a good thing, but as the saying goes ‘you should never let a good crisis go to waste’. Climate change is a crisis for Africa, but it is also an opportunity. Rather, than hold out our proverbial begging bowl for money and technical assistance to foster resilience, which is the strategy of most African governments at climate change summits. We can use climate change as the spark for transformation, as we actively seek to mitigate its effects and minimise the continents contribution to climate change. It can be 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. And to take up the mantle of leadership where the worlds advanced nations have failed to do so. In previous posts (here and here) I have advocated for a conception of development in Africa with the dignity of all Africans as its core goal. Anybody thinking about development in Africa in the 21st century has to account for climate change, as climate change not only endangers our environment but our development and dignity as well. However, with smart, forward-looking policy it need not be a disaster.

Harnessing science to transform agriculture

Agriculture is the employer and source of livelihood for about 60% of the continent. The impact of climate change on agriculture in Africa will be significant and we are already seeing it. This is only the beginning, as pointed out earlier, the bigger the increase in warming the more pronounced these effects will be. This poses a challenge to African states, farmers and consumers; how can we ensure that we can grow enough to feed a growing continent. A large part of that answer lies in investing in science and technology to empower African farmers. To give them the tools (such as GM crops which I have written about previously) that can handle the changing climatic conditions and boost yields. Using technology to give farmers better knowledge about weather, soil and water conditions so they can improve yields, access to markets so they can get the best prices, and access to storage facilities so that we can cut post-harvest losses.

Investing in science and technology would not only help farmers and feed the continent it could provide the push we need to grow our scientific and technological capabilities on the continent. Industrialisation, development, science and technology are intimately linked and if Africa is to succeed in the 21st century digital and knowledge economy it must develop its STEM capabilities. Confronting the challenges of climate change, such as the ones it poses to agriculture could be the African moonshot, that spurs innovation and industry throughout the economy.

Leapfrogging dirty energy

Leapfrogging is the idea that less developed regions, countries or companies can advance rapidly through the adoption of modern systems without going through intermediary steps. The classic case of this in Africa is mobile phones. Mobile phones allowed most of the continent to skip expensive copper land lines, and the embrace of the technology has revolutionised many aspects of life and the economy. Like phone lines we have the ability to leapfrog fossil fuels. Renewable energy is now getting to a stage where they are almost as cheap and will soon be cheaper than fossil fuels. There are some who would argue that fossil fuels like coal are cheap and readily available, however that is increasingly untrue and African countries have free and broad access to the sun and wind. There are others who argue that developed nations used fossil fuels to industrialise and thus why should Africa be disadvantaged by not using them. But that sounds like a petulant child arguing that they too should be allowed to misbehave because everyone else did, frankly Africa has to be better than that. By investing in green ways of generating energy and innovative (e.g. mini-grids) of getting it to the people who need it, Africa can lay a sustainable foundation for its development. We can leapfrog the dirty fossil fuel generating plants and possibly even the expensive centralised electricity grid systems, most importantly we can develop our economies not at the expense of future generations but with their welfare in mind.

Leading the world

We may be a poor continent but that does not mean that Africa cannot lead on key issues. From the 1960’s onwards African nations led the international and diplomatic fight against apartheid South Africa. Boycotting international events, helping South African exiles and the ANC, getting the apartheid government banned from international fora and sports, sanctioning and boycotting their economy, it took a while eventually the rest of the world caught up and the apartheid system fell. The developed world has displayed a remarkable lack of leadership on the issue of climate change. Australia and the USA have leaders in charge who, despite the mass of evidence, deny climate change. Canada and the EU talk a good game but are yet to make those hard choices that would have a real impact on carbon emissions (like taxing carbon). There is a gap which Africa could fill. With policies, like putting a tax on the carbon emissions content of imports. with actions and putting our money where our mouth is, such as investing in green energy instead of fossil fuels. And smart diplomacy – combining our voice on the global stage to help build consensus, shame others into action and forge constructive engagement with the issue of climate change. Not all global leadership issues require a big wallet, or a big gun, determination and concerted effort can make a difference. This is not just wishful thinking on my part, as the continent in line to bear the biggest impacts of climate change, utilising whatever influence we may have to get global action is effort well spent.

Climate opportunity

The 2018 winners of the Nobel prize for economics were Paul Romer and William Nordhaus. Both won for their work on economic growth over the long term and though they did not work together, the work they did does dovetail. Romer’s work looked at how innovation and new technologies come about, and he found that by investing in innovation (like funding research and development initiatives) you can boost economic growth in the wider economy. Nordhaus’ work looked at the connection between the economy and the environment and the impact of climate change on the economy and wider society. Their work comes together in a rather simple way, to combat climate change, to shift our societies and economies to low-carbon ones, will require innovation, new technologies and new policies. We need to invest in the knowledge and ideas that will combat and mitigate the effects of climate change.  Most importantly what Nordhaus and Romer’s work suggests is that by investing in knowledge and ideas and implementing them you can generate long-term growth. Thus, by combating climate change we could actually stimulate economic growth.

For Africa this is an opportunity to do the right thing for current and future generations, and to lay the foundation for the development that we have been chasing for the last half century. Climate change could be a disaster for Africa, or it could be the thing that forces us to pursue a path that leads to long-term, sustainable growth. It will require us to be innovative with our policies, to rethink our ideas of development and industrialisation and to invest in the ingenuity, knowledge and innovation of African’s from all walks of life. Climate change will be one of the defining issues of the 21st century and Africa faces a choice, we can be a victim, or we can take the initiative, take responsibility and make it the springboard to a sustainable successful future.

Genetically modified crops can work for Africa, but only if Africa owns it.

“Sixty per cent of the world’s arable land available today is in Africa. All efforts to feed the world — not just to feed Africa, but to feed the world — in the next decade or more are going to focus on Africa. Which means Africa has to do it right and have the scientific basis not to mess it up.” – Calestous Juma

Genetically Modified Organisms (GMO) are a topic that provokes spirited debate between its detractors and proponents. One side insists that GM crops offer a second green revolution to a continent with persistent food security problems, and governments and people should just get over their reservations and embrace them. The other side warns of dire ecological, economic, health and neo-colonial consequences if Africa allows its crops to come under the control of the corporate mono-culturalists for whom profit is their sole goal with the apparent concern around the health and well-being of Africans and their environment being PR at best.

This is not a black and white issue. Both sides have valid viewpoints. GM crops do have the potential to be highly beneficial to African farmers and enhance the food security and health of millions around the continent. However, the practices of the corporations that make, distribute and are lobbying for GM crops are disturbing. Furthermore, the concerns for people’s health and ecological sustainability should not be dismissed but addressed with data and testing.

Like the debate around GM crops, Africa does not face a black and white choice of refusal or submission GM crops and the companies that make them. Africa can chart a different path, with a policy that puts African farmers, food security and innovation at its heart. Africa can tap into the potential benefits of GM crops, driven by the needs of its farmers and innovations of scientists without having to give our agricultural future to the profit motives of foreign multinational Agri-corps. For that to happen, GM policy in Africa would have to be based around the ideals of public ownership, accountability and collaboration.

 

Potential and pitfalls

When dealing with the topic it is crucial that a proper definition of GMO’s be used. With that in mind I will use the WHO definition of “Organisms (i.e. plants, animals or microorganisms) in which the genetic material (DNA) has been altered in a way that does not occur naturally by mating and/or natural recombination… It allows selected individual genes to be transferred from one organism into another, also between nonrelated species.” [1]. People have been altering crops and animals for millennia, through techniques such as selective breeding. What makes GM different is that we are altering the blueprints of the organism, its DNA, to add or remove characteristics that we may like or dislike. This is a potentially powerful technology and it is unsurprising that it provokes such strong feelings.

The Potential – Higher, healthier yields with less inputs

By inserting desirable traits into the genes of plants, there are a number of advantageous properties that could be given to plants.

First are the yields farmers get, which genetic modification can significantly increase through several avenues. Plants can be modified to be resistant to bacterial, viral or fungal diseases as well as pests, reducing the number of crops farmers loose to these scourges. In addition, plants can be given genes that allow them to withstand environmental stresses. For instance, as rains become less consistent it would be a great benefit to have crops that can withstand periods of drought or heavy rains. With climate change causing shifting weather patterns resilient crops will be critical.

The second great benefit is health, and this come about in two forms. GM crops that can be made naturally resistant to pests and infections require less pesticide, herbicide, fungicide etc. This is healthy for the farmers who would handle less chemicals, healthier for consumers as less chemical use means less of these substances being ingested, and its better for the environment as there are fewer of these chemicals getting into the wider environment and having adverse effects (e.g. water run off into rivers and lakes that causes fish deaths and algal blooms). The second possible health benefit of GM is nutritional. Through genetic modification the nutritional value of the plant can be enhanced. An example of this is yellow rice which has been modified to produce Vitamin A in order to prevent Vitamin A deficiency in children which can cause blindness.

The third broad benefit is an offshoot of the other two. By modifying plants to require less pesticide, herbicide, fungicides and fertiliser, you reduce the inputs necessary for farming. In a continent where, expensive farm inputs such as fertiliser and pesticides are a constant burden for farmers, reducing the amount of inputs required while sustaining or improving yields would give farmers a leg up without having to resort to expensive subsidies or government programs as we do now.

The Pitfalls

However, GMO’s are not all rosy. First, is the reality that “life finds a way”. Try as we may eventually GM crops will mix with and reproduce with indigenous crops. What effect will this have on the farmers who have chosen not to grow GM crops, what characteristics will these crops have, and if the GM crops are patented will they be forced to pay royalties.

Which brings us to the second issue, and in my mind the most crucial. Corporate control. Currently GM crops are largely a corporate creation, patented and controlled by large agricultural biotech corporations whose prime motivation is profit and not the interests of African farmers and consumers. Companies like Monsanto develop crops to be compatible with their own herbicide so that you only get good yields when used in conjunction with their other products. In addition, such crops tend to have terminator seeds. The seeds produced by the plants are sterile and thus farmers must purchase new seeds every year guaranteeing the company a revenue stream. Furthermore, the patents that these corporations have on these crops blocks innovation, evolution and adaption forcing farmers into farming in a specific way.

The third question is one of safety. Do we know enough about GM crops and their impacts on the environment and human health to be confident enough to allow them into the market? Do we have the systems regulations and facilities to test these crops to ensure their safety?

GMO’s with an African (policy) flavour

The answer to the issues presented by GMO’s both their potential and pitfalls, is not to completely ban them or allow agro-chemical industry free reign in the continent. What is needed is good policy. Good policy on GMO’s in Africa would consist of three elements. The first is public ownership and accountability. A major problem with GM crops is their corporate nature. The only way to ensure that GMO’s would be beneficial to Africa is to strip the profit motive from their research, design, testing and regulation. And the only way to do that is public ownership. This brings us to the second element, accountability. There is a lot of mistrust around GMO’s, the motives behind them, their ecological and health impacts and their use. The only way to assuage these concerns is transparency. No for-profit corporation will be transparent about commercially sensitive information such as its own GMO’s, but public institutions can be transparent and can be designed to be so, by incorporating stakeholders and their concerns into their design and decision-making structures to ensure that those concerns are met. The third element is collaboration. If GMO’s are truly going to be beneficial to Africa it will require collaboration on two levels. First between stakeholders within the agricultural industry, research scientists, farmers, environmentalists, doctors, consumers will all need to come together to guide the development of GM crops for the African context. A context in which small farmers are the vast majority of farmers, where climate change and changing weather patterns are making farming harder and where growing populations require more agricultural productivity to feed them. The second level is internationally. No single African country has the ability to set up and sustainably fund institutions that can design, develop, test and disseminate GM crops over the long term. However, together they could do so. The ability to pool funding, expertise, and facilities only makes sense, especially as many African countries face similar agricultural challenges and most staple and commercial crops are grown across multiple countries.

African GMO’s

GMO’s need not be a threat to Africa, they could be an opportunity. However, in their current corporate dominated form they do pose a threat. They threaten to yoke African agriculture to the profit motives of multinational Agri-biotech companies, who are not accountable to the African public or governments.

As Calestous Juma urged, Africa must do agriculture right, and to do that we have to embrace and own the science. Since Fritz Haber and Carl Bosch invented the Haber-Bosch Process in the early 20th century that allowed the production of fertiliser on an industrial scale, to Norman Borlaug and short stalk wheat in the 60s and 70s that saved millions from famine, science in agriculture is how we have fed the world. If we are to feed and develop Africa we must embrace science as part of the solution, and GMO’s as part of that. Smart policy, that is public, transparent, accountable and collaborative, would help ensure that Africa owns its GMO’s and its own agricultural destiny.

[1] http://www.who.int/foodsafety/areas_work/food-technology/faq-genetically-modified-food/en/

Focus on FOCAC: what was missing.

Last week the triennial Forum On China Africa Cooperation (FOCAC) took place Beijing. The summit came in the midst of growing questions (particularly from the western media, academia and governments) about China’s ‘debt diplomacy’ and pushback from China that the west is simply trying to paint a growing and beneficial relationship in a bad light. Debt diplomacy, simply put is the perception that China is using debt as a strategic tool to get strategic assets or trap developing nations desperate for investment (such as African states) in debt laden subservience to China (you can read this if you are interested in further exploring this line of thought). The summit also showed the growing disparity between the West’s diminishing clout in Africa and the growing influence and importance of China. While Angela Merkel, Theresa May who visited Africa, and Donald Trump (who was visited by President Kenyatta) made optimistic statements about being committed to investing in Africa, China pledged cold hard cash, 60 billion dollars to be exact, as the proof of its commitment.

As you will likely notice about both these narratives (debt diplomacy and China vs the West in Africa) is that they are driven by foreign (Chinese or western) concerns and interests. Africa is (worryingly like in the days of the cold war) a battleground for the interests and ambitions of two increasingly competitive power blocs. There is little concern given to the needs and aspirations of African’s, nor how the actions of China or the West can tie into development policy. I blame this on Africa’s leaders who have failed to properly articulate the concerns of African’s in the broader China-Africa relationship, and to strategically think about how to integrate and utilise Chinese investment and geopolitical policy into our own development policy. Secondly, in response to the renewed optimism at the money pledged by China, the devil is in the detail and we got very little of it, beyond speeches and headlines. Third, FOCAC did nothing about the image problem, of both African’s in China and the Chinese in Africa. While our leaders may talk about each other in glowing terms, how their respective peoples view each other and interact will define the relationship going into the future. Fourth, Africa’s debt is a problem and both Africa and China, if they are indeed sincere, need to come up with viable policies to ensure that Africa does not find itself in a debt trap again.

The recent FOCAC summit was notable just as much for what was missing as for what was said. The China-Africa relationship will be a defining feature of Africa in the 21st century, whether its positive will need African policy makers and political leaders to be more thoughtful about that relationship and the policies that actualise it.

1.  Speak up Mr President

49 African heads of state made their way to Beijing for FOCAC, more than went to the last US-Africa summit or TICAD (Japans equivalent of FOCAC) symbolically this just how important China is to Africa. This is not surprising; China has invested and is committing to invest vast sums of money in Africa. In addition, China is offering cooperation and assistance in several areas such as security and combating poaching. While it is not surprising it is also worrying. Worrying because there is no clear articulation of the African position from individual African nations or from regional or continental bodies. What are African countries looking to get out of China, what are Africa’s nations visions of development, and what do we see China’s role in it being, and what we see as a mutually beneficial relationship. African presidents in various forms gave the usual platitudes about the importance of investment and infrastructure, the value of Chinese partnership and their commitment to economic development. There was no clear articulation of the African perspective and this is a problem, because it means that Chinese interests and concerns are driving the relationship and even if there is no malice involved, a one-sided relationship is still detrimental. Even if Africa is the junior partner, a sufficiently articulate, determined and smart junior partner can play a large role in defining a relationship. That is what was missing at FOCAC from Africa’s leaders, a clear conception of a balanced Africa-China relationship, not just an acceptance of a lopsided China-Africa dynamic. What that looks like is up for debate, (I gave my ideas In a previous post), but without a vision we are lost and ripe for exploitation.

2.  The devil is in the details

60 billion dollars. That, amount slightly larger than the GDP of Kenya, will be the figure that defines FOCAC. That China has pledged 60 billion dollars of aid, concessional loans, credit lines, debt relief and grants to the African continent over the next 3 years, and that there will be no vanity projects paid for by that money. Beyond the, 60 billion there were also commitments around security assistance, climate change resilience, anti-poaching among others. However, as with any great promise the devil is in the details.

On the 60 billion dollars what’s needed is specifics of what China considers a concessional loan, what the conditions are for debt relief, the conditions for access to a credit line and the interest payment terms and periods for that credit and what, in the eyes of Beijing, constitutes a vanity project.

On the issue of security assistance. Is it training? More Chinese bases on the continent? Is it domestic surveillance and tracking technology or internet suppression tools (which should scare any African concerned with human rights).

Such, questions abound on a number of areas announced and committed to at FOCAC, unfortunately there are few policy papers, bi-lateral and multi-lateral agreements available to the public or being debated in parliaments around the continent. The devil is in the details and the devil cannot be seen. We have no idea what African leaders have committed in Beijing, thus there is no way for African’s to fully assess and appreciate the relationship with China.

3.  The image problem – race, rhinos and chopsticks

How do the Chinese (the people not the government) view African’s? Judging by the depictions of African’s and black people in Chinese popular media such as the widely watched lunar new year’s show, or the art show which compared black people to animals. It is clear that race is an issue. It is an issue that doesn’t just manifest itself in China but in Africa as well. Around the continent there are numerous instances of African workers on Chinese projects being treated unfairly and even cruelly (as recently came to light in Kenya), building a perception among many African’s that the Chinese are exploitative and disrespectful, and at times this has boiled over into protest .

Stereotypes, unfortunate interactions and cultural misunderstanding are a rather prominent feature of China – Africa relations when you look beyond the high-level government get-togethers. Rather than avoid the issue, issue hasty apologies or outright deny or rationalise the issue of negative perceptions, racism, cultural misunderstandings etc. between ordinary Chinese and African’s, governments on both sides should be attempting to address it head on. This could involve to building contacts that go beyond high-level summits and infrastructure projects. Create spaces where people can interact (such as university exchange programs), where African’s and the Chinese can learn about each other, their diverse histories, cultures, their common experiences of western imperialism, and the different experiences of life across both Africa and China. FOCAC could be the start of a broader relationship between China and Africa that isn’t just about government to government bi-lateral agreements, but a broader relationship between two peoples which could go a long way to providing the basis for a long term mutually beneficial relationship that can go beyond sovereign debt.

4.  The debt dilemma

Despite the Chinese contention that the debt diplomacy narrative is a western fiction meant to paint a negative picture of China to audiences around the world. The truth is that it is a problem. African countries are finding themselves once again straining under increasing debt pressure, and Chinese debt plays a significant role in that (links/graphics). For African nations there is clearly a need to make Chinese financing more sustainable, and unless China is as utterly cynical as former secretary of state Rex Tillerson suggested, then they too have an interest in coming up with ways to make Chinese financing more sustainable for African nations.

This is not something that must or should come from China. The first realisation that must happen in the finance ministries of Africa, is that China is not a benevolent Santa Claus, handing out wads of cash. Debts must eventually be repaid. Second, is coming up with a viable, mutually acceptable framework for financing going forward. This could include a set a of criteria that projects must meet before getting funding or the Chinese Foreign Ministry and EXIM bank working with the African Development Bank, Afriexim bank or the regional development banks to help African governments assess and structure loans to ensure their sustainability. These are just two ideas, fundamentally the point is that China and Africa are not locked into a debt trap path, and with some innovative policy the debt problem could be defused.

Rebalancing China-Africa

I have recently taken my own advice and been reading up Chinese history to gain a greater understanding of a truly extraordinary people. In doing so it is hard not to draw parallels between the past and the present. Around 2,100 years ago Emperor Wu of the Han dynasty established many of the routes and relationships that would come to known as the silk road. He did so with a mixture of diplomacy and conquest. At its height, China under the Han dynasty was trading with the Rome and Parthia to the west and numerous vassal states paid homage to the emperor. Today its President Xi (emperor in all but name) is, through a canny mix of diplomacy, ‘conquest by debt’ and the almighty dollar building a new silk road (it is no coincidence that the Chinese government itself drew explicit comparisons between the ancient silk road and the belt and road initiative). And it was not hard to see the (number) of African presidents in Beijing for FOCAC there to pay homage to the emperor of the rejuvenated 21st century middle kingdom.

China’s ambitions may not be as imperial as its history, however by looking at what was missing from FOCAC, it is clear that not only is the narrative of China in Africa skewed, the reality of the relationship is lopsided as well. This is not due to evil machinations from China. Rather it is due to a failure from African leaders to try and define that relationship beyond the headline figure of how much money Beijing is pledging to invest in the continent. Rebalancing that relationship will require African leaders to develop a vision of what a mutually beneficial relationship between their countries and China looks like. Doing that will require African leaders to develop a coherent vision of what their development goals and aspirations are based on those of their people (something I have talked about at greater length in this post). Once there is a vision it can be articulated, negotiated and integrated into a mutual and more equal relationship between the Peoples Republic of China and the many republics of Africa.

I do not subscribe to the western view that what we are seeing is a cynical 21st century imperialism from China. Neither do I ascribe to the view that China is a completely benign partner for Africa and is not pursuing its own strategic interests. What I am is an African, who wants to see our continent develop a mutually beneficial relationship with a remarkable nation, that is a world power and will likely be a superpower. Doing so requires being realistic about Africa’s relatively weak bargaining position, but it also demands vision and strategic thinking, which will form the basis of policies that will ensure that Africa does not find itself holding the short end of the stick again. I sincerely hope that African leaders and policymakers are not thinking about what happened in Beijing last week, but rather are thinking about what could happen at the next FOCAC in 2021.

 

Kickstarting Intra-African trade for SME’s and Entrepreneurs

This is the moment for the African continent. A free trade area for Africa is going to be like a flood. A flood that is going to lift all the boats. It is not about South Africa. It is more about all of us. All countries of Africa participating – big and small. Cyril Ramaphosa, President of South Africa

On March 21st, 2018, 44 African heads of state gathered in Kigali signed an agreement called the African Continental Free Trade Area (CFTA). The CFTA is big and ambitious. It seeks to create a single continental market for goods and services, as well as free movement of capital and people. Its primary goal is to boost intra-African trade and spur industrialisation by fostering a more competitive industrial sector, increased economic activity between African states and giving African companies a large market in which they can scale and become globally competitive (see figure 1 below).

Figure 1: Source UNCTAD http://unctad.org/en/PublicationsLibrary/presspb2018d4_en.pdf

In global trade Africa is a commodities exporter, selling raw materials and agricultural goods, while importing finished manufactured goods. Making the continent susceptible to swings in global commodity prices and perennially large trade deficits. Meanwhile intra-African trade is frustratingly small in comparison to Africa’s international trade (see Figure 2). The CFTA is potentially a first step towards rectifying that.

Figure 2: Source https://www.brookings.edu/blog/africa-in-focus/2018/03/29/figures-of-the-week-africas-intra-and-extra-regional-trade/

My goal in this post is not to talk about the big policy actions needed to make the CFTA a reality. Such as comprehensive ratification, regulatory alignment and the need for connecting infrastructure. That is well covered by the AU itself and numerous other commentators, institutions and policy documents. Instead I want to talk about policies actions that governments can to take to enable African SME’s and entrepreneurs to take advantage of a pan-African free trade area. SME’s are the lifeblood of the African economy, they are one of the continents biggest employers and sources of wealth. And entrepreneurs and investors willing to take risks are critically important to the continents future growth. If SME’s and entrepreneurs can succeed then Africa will succeed, and if the CFTA is to be a success it must serve not only big business but SME’s and entrepreneurs as well.

1-   Creating awareness and links

Trade does not happen in a vacuum. People and businesses must be aware of the opportunities and how to take advantage of them. The first policy initiative that the AU and African governments should take is an awareness and education campaign targeting SME’s and entrepreneurs across the continent. Explaining what the CFTA is, which countries are a part of it and the key steps they need to take to be able to take advantage of it.

Secondly it is not enough to know there are opportunities in other markets. You must be in a position to take advantage of them, you need to have knowledge of and develop relationships in those markets. African governments are in a unique position to facilitate this. With embassies around the continent they can be clearing houses for information and networking hubs. Doing research on local regulations, market conditions building a database of local businesses which can be made available to businesses and entrepreneurs in their home countries. They can organise networking opportunities allowing businesses and entrepreneurs to connect both in the real world and virtually online for those unable to travel. Crucially this can work both ways not just to the benefit of the home country of the embassy but for those who are looking for opportunities in the other direction. European countries such as Germany and Holland provide similar services globally to businesses, African governments can start by doing so on the continent.

Creating awareness and links within and between African business communities is crucial to improving intra-African trade. The CFTA is of little good if people are not aware of it and if they have no entry points, networking opportunities and access to information in other African markets. African governments can fill this gap.

2-   Allow tech to move the money

Anyone who has travelled across Africa or done any cross-border business on the continent knows how much of a pain it can be to move money between countries. The laws vary, some countries have foreign exchange controls, others have currencies that can be difficult to convert, and the relative value of these currencies is always changing. All of these are significant barriers to intra-African trade especially for SME’s who unlike their larger corporate counterparts do not have legal and finance departments to navigate through the mess.

What’s needed is a simple way for business to acquire foreign currencies as and when needed. Thankfully the Fintech (financial technology) sector is already growing across the continent and can fill this gap. African governments should allow Fintech services to enter the currency market and allow SME’s and traders to buy and sell other African currencies and transfer payments to their suppliers and customers in whatever country they may be in. Many African countries now have mobile payments, mobile banking and mobile lending, there is no reason why these services should not be allowed to operate across countries.

The second area where Fintech can make a difference is in trade finance. Much of global trade is done on credit. Companies will borrow or access lines of credit, usually from banks, to buy goods and transport them to another market and repay the loan when the goods are delivered and paid for. Few SME’s or traders will have access to lines of credit with banks, but many do use mobile banking and lending for exactly this purpose. To fund the purchase of goods and pay it back when they are sold. If fintech firms were allowed to play this role on a continental level it could give SME’s and traders, the ability to fund cross-border business where traditional banks would regard the amounts of money being lent as too small and SME’s and traders too risky.

Fintech could play valuable role in intra-African trade. Providing SME’s and traders the means to fund their activities and the ability to conduct business in foreign currencies with reliable platforms with which to pay people. Trade needs money and a reliable means of payment. Fintech could play that role for the businesses and traders who are not on the radar of banks. What is needed is for African governments to come up with the right regulatory framework giving Fintech services the ability to operate across borders and mobile networks and the protect their customers from unscrupulous lenders.

Trade for all

Intra-African trade has the potential to be a game changer on the continent. Giving African investors, entrepreneurs, businesses and the wider economy access to new markets and new growth. More importantly it could change lives, not just through new jobs and opportunities, but through simple trade. In 2017 Nigeria experienced a tomato shortage, Kenya experienced a maize shortage both countries resorted to importing these foodstuffs from markets like Mexico and Europe. However, around the continent there were tomatoes and maize in plentiful supply in other countries. With a continental free trade area, these all to frequent shortages and price spikes need not happen. Retailers in Kenya or Nigeria noticing that their local suppliers are unable to meet demand and prices are going up could buy from other suppliers around the continent with little difference in price and consumers wouldn’t have to deal with the shock to their wallets.

There has been a lot hype and hope around the CFTA. However, it still has some way to go, only 3 countries having fully ratified the treaty, 22 are needed for it to come into effect. In the meantime, African governments need to ensure that it is not just a treaty for big business but is one that SME’s and entrepreneurs can also take advantage of. If that is done, it will help provide a shot in the arm to intra-African trade and make it so that all African’s can have a stake in and benefit from a new pan-African economy.