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Ending the African debt trap: A developmental debt policy framework

“We have been indebted for fifty, sixty years and even more. That means we have been led to compromise our people for fifty years and more.” – Thomas Sankara OAU July 1987

In 2005 developed countries wrote off billions in debt accumulated by Highly Indebted Poor Countries many of those in Africa. Debt relief gave many countries some breathing space from crushing debt and structural adjustment programs that saw public services decimated, and development expenditure minimised. Over a decade later much of the continent is walking into the same trap, accumulating foreign currency denominated debt with very vague ideas of how we are going to pay it back (figure 1)[1].

If we are not careful many African nations will find themselves where they were in the 1990s (some like Ghana already have); cutting spending and services to get IMF bailouts so that they can pay their debts.

As Thomas Sankara alluded to in 1987 this is no way to develop a continent, because in the world of international finance, banks and bondholders do not care about your people, they just want to be paid back on time. When it comes time to pay back this current binge of debt of what African nations are accumulating, just like in the 1980s and 1990s it will be the people who suffer, making the claims of leaders justifying this debt in the name of development a cruel joke.

African governments need to learn how to borrow smartly and use the money prudently. In my view African governments need to develop a framework through which borrowing is assessed; based on a set of principles that benefit Africans rather than burden them. Ending the African debt trap doesn’t mean ending African debt, it means making it work for us.

Debt: Bonds, Loans and Guarantees.

Governments in Africa borrow and accumulate debt in three primary ways. First, by issuing bonds, where investors lend money to the government by buying the bond who in turn promise to pay investors back in full, with regular interest payments[2]. Loans are straight forward, and work in the same way as a bank loan you would get. The main sources of government loans are international banks, multinational institutions like the IMF or World Bank and direct loans from individual states. Guarantees are slightly different, the government does not borrow directly but guarantees the debt of a company, usually a state-owned company, so that if it fails to repay its loans the government has to repay them.

Debt is not inherently a bad thing. It allows you to access funding that you do not otherwise have to invest in growth. For companies, debt is used to fund expansion, new machinery, hire more workers etc., to grow it is revenues. For countries debt can be used to fund investments in the country beyond what is available from tax revenue. It gives government the ability to invest in areas such as infrastructure, education, industrial or agricultural initiatives that give people and wider economy a higher capacity for growth and development. Put simply if you use debt to invest areas that create more value than the value of debt then you are fine, as the debt will pay itself back.

The problem with African debt

Debt becomes a problem when you have trouble paying it back. As your debt load increases you start borrowing money simply to pay for earlier debt, like using a credit card to pay off another credit card. Eventually you are forced to ask for help, going cap in hand to your creditors and asking for a bit more time or to the IMF for a bailout and as Africa discovered in the 80’s and 90’s, when that happens your fate is no longer in your hands.

In Africa bad debt falls into 3 broad categories. The first is corruption and misuse, where money borrowed is not even used in any form of gainful investment but essentially stolen. Mozambique was one of the success stories of the last few years with 7%+ growth rates even as it borrowed heavily (Figure 2).

Investors were not concerned with the debt levels because of Mozambique’s huge gas reserves. In 2013, Mozambique borrowed $850 million dollars to invest in a new tuna fishing fleet meant to jumpstart the countries fishing industry. However, Mozambique did not buy fishing boats, it bought gunboats, and shortly afterward it emerged that the government had been hiding an additional $1.4 billion of in loans whose use is shrouded in mystery. By 2016, Mozambique was unable to pay its loans and it defaulted on its debt. Mozambique is now in the arms of it is creditors and the IMF. When its gas fields start producing commercial gas in 2023, the money will go towards paying its loans first before it goes to the people of Mozambique.

The second way African debt tends to get out of hand is through investment in misguided projects, otherwise known as white elephants. These projects are often pursued for political reasons such as being in the part of a country the minister comes from, or connected people getting the contracts rather than development objectives being main goal. Today there is a building frenzy across the continent as governments invest in infrastructure to boost economic growth. This infrastructure is expensive, and governments have to borrow to fund it and it is a large part of the significant increase in debt on the continent over the last few years. If these roads, railways and dams are white elephants and provide little value to communities and countries they are in, Africans will be saddled with debt for vanity projects.

The third way in which governments accumulate debt is through providing guarantees to state-owned companies who take on debt for a variety of purposes. However, many state-owned enterprises in Africa are poorly run, with spotty oversight and take out debt for poorly conceived expansion plans or to fulfil poorly thought-out political directives. Eskom is South Africa’s publicly owned electricity monopoly, but it is in dire condition. Mismanagement, corruption, old power generation plants, expensive construction of new plants and a failure by the government to let it raise tariffs has put Eskom into a precarious position. Eskom has over the years borrowed to cover the gaps using government guarantees. According to figures provided by the power utility, total debt amounted to R359 Billion (29 Billion Dollars). This amount of debt, as the finance minister recently conceded is a threat to the South African economy. And Eskom is not the only state-owned enterprise in South Africa in trouble. Government guarantees to state owned enterprises stood at R467 billion at the end of 2015/16. Standard & Poor’s forecasts they will swell to over R500 billion by 2020 – 10% of South Africa’s current GDP, adding to South African debt that is already worth over 55% of GDP.

The problem with African debt is that too much of it is ill-considered, too much of it is stolen and most of it is not put into smart investments which will improve people’s lives and create value.

The trap closes – International control.

A key feature of international debt markets that puts the continent at a distinct disadvantage is who controls the debt. Creditors are not usually terribly concerned with what governments do with debt as long as it is paid back. Thus, when governments get into tight monetary circumstances, creditors usually demand that actions be taken to ensure that the debts are paid. The vehicle for this is usually the IMF, the multinational institution charged with securing global financial stability and debt defaults are bad for stability. When the IMF comes in to bail out a government it comes with conditions and as Africans found out in the 80s and 90s (and as Greeks are experiencing now) those conditions are painful. They usually involve a mix of cutting government spending and services, raising taxes and cutting subsidies, privatising public services, selling public assets, cutting the number of government employees and limits on development, spending and investment. With African governments piling up more and more debt we are getting closer to being subject to IMF conditionalities again, and the pain and protest seen in Greece will become a feature in Africa.

A Developmental Debt Policy Framework

The question becomes, how do we make sure any money we borrow is good debt. How do policy makers, politicians and the wider public decide what is worth borrowing money for? If Africa is to end the debt trap cycle it must change the way it decides to borrow, if African countries need to borrow money to fund development expenditure, then we must have something that guides that process. This requires a developmental debt policy framework, that is based on a set of principles that guides various actors as they decide whether the government should be borrowing money. The principles upon which responsible developmental debt would be based are simple. It must be sustainable, valuable, and accountable. These three principles would answer the key questions of why we are borrowing, how are we borrowing, can we afford it and will it create value for the country.

Sustainable

Put succinctly, sustainability in debt is about the ability of country to afford the debt. Can the money borrowed, both the principal sum and interest, be paid back by either normal revenues or by the revenues generated project being funded, without requiring extra burdensome measures, such as additional taxes or cutting of existing government services. Ensuring debt meets this requirement of sustainability will ensure that African states can afford the debt they take on.

Valuable

The principle of value is aimed at ensuring that the areas the debt funds have value to the nation. Value can come in two forms. First, value to people, improving the living conditions or opportunities of people. If it can be demonstrated that a policy, initiative, service or project that requires funding will demonstrably improve the lives of the public, it is not money wasted, as fundamentally development is about improving the living conditions and opportunities available to Africans. Secondly, value for money, which is simply, can the project, or initiative generate enough revenue to pay for the money being borrowed. These two forms of value do not limit the options for governments, rather they ensure that the money borrowed will go into something of importance. For instance, improved healthcare is key to improving the lives of millions around the continent and this requires that Africa train and deploy many more healthcare workers, as doctors, nurses, lab technicians etc., but this is an expensive undertaking. However, the training and deployment of a significant number of healthcare workers is not cheap. If the government can develop a program that trains and deploys healthcare workers in a way that benefits the majority of the population, borrowing to fund this can be justified. In terms of value for money this would be aimed primarily at infrastructure projects and guarantees to state owned enterprises, if it can be demonstrated that these projects (e.g. a new railway) or state corporation (e.g. an airline) can reliably pay for itself then borrowing to fund the investment can be justified.

Accountability

The principle of accountability is simple, the public finances must be public. Transparency in public financing creates accountability. Accountability in public debt transactions would require governments to open about what the borrowing is going to fund, the terms upon which the money is to be borrowed, how they plan to pay the debts back and tracking the use of the borrowed funds to ensure that unlike Mozambique’s gunboat tuna fleet, it goes where it is intended.

These three principles are interrelated. Debt that creates value is far more likely to be sustainable and being open and accountable about the terms on which the money is being borrowed allows for sustainability and value to be accurately and properly assessed. Having a developmental debt policy framework based on these three principles, would help ensure that Africa takes on debts that serve a developmental purpose. Furthermore, these principles can be developed into more detailed project and policy assessment frameworks, which policy makers, politicians, civil society and the wider public can use to access the government’s borrowing and hold it to account. Unlike the conditionalities imposed by the IMF or bond holders using these principles to guide African debt would be aimed at development not just paying back the money, they would give Africans agency over their own debt by requiring responsibility on the part of African policy makers. To end the cycle of African debt traps where development and vital services are sacrificed on the altar of fiscal responsibility, will  require Africa to adopt policies that better guide how the continent borrows and what it uses for.

[1] IMF, Regional Economic Outlook Sub-Saharan Africa: Fiscal Adjustment and Economic Diversification, October 2017 https://www.imf.org/~/media/Files/Publications/REO/AFR/2017/October/pdf/sreo1017.ashx?la=en

[2] http://guides.wsj.com/personal-finance/investing/what-is-a-bond/

Rethinking Africa’s industrialisation

Industrialisation, it is economic development goal of countries around the continent, it is the key that will unlock the doors to mass employment, better standards of living and higher income of hundreds of millions of Africans. Yet this goal has proved elusive, through decades of state led developmental policy, to structural adjustment and market led to development, industrialisation has been stubbornly evasive. There are several culprits that one could blame for this such as corruption, or foreign intervention on the continent, and there is no doubt that they are factors. One of the key culprits and the one that I would like to focus on is the failure of policy, specifically a failure of imagination. African leaders have been focused on replicating Western and East Asian industrialisation. I believe in doing so they have created fundamentally flawed policy, policy that is not grounded in the realities of African economies and societies but on the experiences of others. I firmly believe that if we re-imagine industrialisation, ask ourselves what we have that we can build on, how to harness it and what we want our countries to look like afterwards, we can develop a clear idea of what African industrialisation is and the right policies to pursue it.

Industrialization

What is industrialisation? It is a word that gets thrown around a lot, and far too often it is used in jargon filled economic or policy reports that render the word meaningless such as this from the UN Economic Commission for Africa (UNECA);

‘The big opportunity for Africa in 2016, as a late-comer to industrialization, is in adopting alternative economic pathways to industrialization. This requires governments to take on-board the drivers, challenges, and trade-offs in pushing for a greening of industrialization’[1]

If we are to go for simpler definition of the word you could look at the dictionary, the Oxford dictionary defines it as ‘The development of industries in a country or region on a wide scale’[2] which is unsatisfyingly vague. Wikipedia’s definition is more detailed stating ‘Industrialisation is the period of social and economic change that transforms a human group from an agrarian society into an industrial society, involving the extensive re-organisation of an economy for the purpose of manufacturing.’[3]

Thus, I imagine when African leaders are talking about industrialisation, they are talking about transformation from an agrarian society and economy to an industrialised one, where most Africans work in factories producing goods for the world. This industrialisation is seen as the quickest and best way to mass employment and poverty reduction which Africa desperately needs. To do this, African leaders are building transport and energy infrastructure to bring down the costs of production and investing significant money and effort in attracting foreign investors to build manufacturing industries. However, there are serious issues with this way of thinking which makes a traditional industrialisation policy for Africa unlikely to be effective.

Impediments to industrialisation

The first issue is global, competition. Africa sees its key competitive advantages lying in two factors, a young and cheap labour force and growing population providing a growing market. This is true, but it is not unique. Nations such as India, Bangladesh, Vietnam, Indonesia etc. all have young and growing populations and unlike Africa they are much better integrated into global trade networks, and already have attracted significant manufacturing industries such as textiles and vehicle assembly, in short, we are competing against other regions who are farther down the road than us. Second, infrastructure is not enough. The cost of production (into which the costs of power, labour and transport are big factors) is a significant element in the thinking of potential investors but they also need legal security, the knowledge that their intellectual property, and contracts will be protected and enforced. They require physical security for their facilities, goods and workers and they need stable regulatory and tax regimes. These additional factors are unfortunately not always the focus of government industrialisation policy. Third, automation. As automation decreases the need for labour in manufacturing industries, cheap African labour becomes less and less of a draw to potential industrial investors.

Thus, African leaders and policy makers face a conundrum. The strategy they are pursuing is subject to competition from better placed nations in other regions, the focus on infrastructure is not enough and technology may take the jobs we are hoping to attract.

Reimagining industrialisation

In the face of this Africa needs to get creative, we need to reimagine industrialisation for Africa and there are several ways we can do this.

  • Agriculture as industry

Farming is the primary source of food and income for Africans and provides up to 60 percent of all jobs on the continent. [4] It is impossible to industrialize without the agricultural sector playing a significant role and it is no accident that China, Japan and South Korea all pursued land and agricultural reform as the first step in their industrialisation. Africa’s agriculture sector holds immense potential not just for growing food but for value addition (processing and marketing of agricultural products). Most agricultural products exported from the continent are exported as raw or lightly processed and this is a problem. Every sack of coffee and tea exported elsewhere to be processed and sold, all the cocoa exported elsewhere to be made into chocolate, all the avocados exported to be made into guacamole, palm oil, etc (this list could go on) is millions of jobs of and billions of dollars of income lost. African governments must make a concerted effort to bring these jobs to Africa, put in place tax incentives, tax penalties, regulations and make available funding to ensure that processing into finished products takes place on the continent. Furthermore, African governments need to help agricultural producers and processors understand the markets they want to serve, what sort of production and logistics chain they will need, what trade and safety regulations do they need to obey.  Creating jobs and income in agriculture will have significant impacts on other industries. All those people with jobs and increased income will want to buy goods and services in other industries which would make Africa an even more attractive investment destination for the industries that we are trying to attract. Agriculture, agricultural processing and marketing can be the foundation of industrialisation on the continent and it is high time governments recognised that and gave it the focus and help it needs.

  1. Don’t be afraid to copy

Many countries such as Japan, China even Germany in the 18th century kickstarted their industrial growth by copying others, not their policies but goods. Japanese cars, and Chinese electronics started out being derided as cheap knock offs, today they are global leaders in their industries. African policy makers should search for commonly imported goods that can be made cheaply on the continent and provide incentives and protection for African businesses to make them on the continent. Why import second-hand American clothes when they can be made in Africa, why import expensive medicine when we can set up generic pharmaceutical manufacturing, why import motorcycles that can just as easily be assembled on the continent. This will take some courage from leaders on the continent as they will face resistance from importers and foreign governments but only by being bold can we achieve industrialisation.

  1. Give African investors and entrepreneurs a leg up

In 1958, the USA created the Small Business Investment Company (SBIC) program to facilitate the flow of long-term capital to America’s small businesses. The SBIC partners with private investors to that finance small businesses.[5] Over the course of it is lifetime the SBIC has provided over $60 billion dollars of funding to small businesses and despite many of them not ending up as success stories, the ones that have succeeded (figure 1) are worth much more than all the money that has been lent out over the course of it is history. The biggest is Apple, back in its early days before it had much private investors apple received a loan from the SBIC which was crucial in allowing it to produce it is first products and get additional investment. Today, Apple is worth over $900 billion[6]. African governments must show the same willingness to invest in African businesses as the private sector has not done so yet and we cannot sit around hoping it will. If only one of these investments is half as successful as Apple it can transform the continent.

Figure 1 (source: http://www.sbia.org/?page=success_stories)

  1. Trade with each other.

Intra-African trade is pitifully low (figure 2). And despite much talk and several initiatives on the subject it remains more expensive and much more of a headache for African countries to trade with each other. This must change, initiatives such as the Continental Free Trade Area[7] and regional trading blocs require leadership and concrete policy from the continent not just lip service. Furthermore, it is important that governments make a concerted effort to link African businesses, and traders with markets across the continent. It is not enough to build infrastructure and sign trade agreements, businesses need to know the regulations of other markets and most importantly link up with whom they can work. African governments have embassies and diplomats across the continent, but they do little work in the commercial realm. They can be tasked with identifying opportunities in export markets as well as providing information to businesses in other countries on opportunities, tax and regulatory information and key contacts at home. Jump starting intra-African trade will require a concerted effort to link African businesses to African markets.

Figure 2 Africa’s intraregional trade as a % of the continent total trade 2002-10

Industrialisation African style.

Industrialisation policy on the continent requires a rethink. African leaders and policy makers must recognise that the world has changed, and we cannot simply copy what Asian countries did 40 years ago or western countries did in the 19th century. Africa must forge its own path to industrialisation and development and doing so will require policy that capitalizes on Africa’s own advantages in agriculture. That is bold and aggressive in kick starting industries such as being willing to copy products and processes. It will require African governments to step up to the plate and fund African businesses that will be at the forefront of indigenous industrialisation. And it will require governments to proactively open up and allow Africans to trade with themselves.

If we want to create the millions of jobs that Africa needs, to move our economies into the next stage of development we must be bold and imaginative. We must re-conceive industrialisation to the African context and remake our policy to pursue it. If not, I fear in another 50 years we will still be wondering when if at all Africa can industrialize.

 

[1] https://www.uneca.org/sites/default/files/PublicationFiles/era2016_executive-summary_en-rev6may.pdf

[2] https://en.oxforddictionaries.com/definition/industrialization

[3] https://en.wikipedia.org/wiki/Industrialisation

[4] https://www.brookings.edu/blog/africa-in-focus/2016/01/22/foresight-africa-2016-banking-on-agriculture-for-africas-future/

[5] https://www.sba.gov/sbic

 

[6] http://money.cnn.com/2017/11/03/investing/apple-market-value-900-billion/index.html

[7] https://au.int/en/ti/cfta/about

Development or democracy? A false choice that creates bad policy

“We spoke and acted as if, given the opportunity for self-government, we would quickly create utopias. Instead injustice, even tyranny, is rampant”. – Julius ‘Mwalimu’ Nyerere

There is an ongoing debate fuelled by the perception that democracy has not delivered the development that was promised during the 1990’s and early 2000’s when many African countries bowed to domestic and international pressure and instituted multiparty democracies. The argument centres on the fact that while many countries have seen some economic growth it has not been nearly enough, and the continent continues to be plagued by persistent poverty. That if you look at the fastest growing economies on the continent, such as Rwanda and Ethiopia, they have strong leaders, who can push through big reforms and policy without all the political horse trading and gamesmanship that usually kills them. They then point to East Asia, pointing out that China, South Korea, Taiwan and Singapore all developed under some form of authoritarian regime. In short, the argument is that by putting democracy before development Africa has put politics before development.

This, in my view, is nonsense, development at its core is about improving the conditions of people so that they may live their lives with dignity (I develop this more fully in this post). For that to happen policy and policymakers have to be responsive to the needs of their people and the people need to able to hold those wielding power to account. It is the only way to ensure that development remains the goal rather than the personal goals of the benevolent dictator in charge.

The arguments against democracy, and why they don’t apply

The argument most often trotted out in favour of benevolent dictatorship in the development vs democracy debate is what I call the Lee Kuan Yew argument after the former authoritarian prime minister of Singapore who charted the city state’s extraordinary development path. The argument is; that like Lee Kuan Yew, authoritarian leaders can commit to policies that ensure political stability, the rule of law and economic transformation. My response to this is simple, while Lee was ruling Singapore the vast majority of Africa was being run by a succession of autocrats, dictators, and despots. From Mobutu, to Amin, to Houphouët-Boigny, to Moi etc. (one could go on for quite a while with such a list), none of them brought long-term political stability, rule of law and economic transformation to their nations. Almost all of them were corrupt, saw the law as a suggestion, fostered division rather than national identity and enacted haphazard polices that privileged short-term personal and political interests that slowed, stopped or reversed development. The evidence from authoritarian rulers in Africa, Latin America and Asia shows that Singapore is the exception not the rule and Africa cannot afford to return to that.

The second argument brought to bear is that of East Asia. Many point to South Korea, Taiwan, China and Singapore who all achieved significant development under some form of authoritarian regime. However, this argument ignores the significant differences between these states and their African counterparts. First, apart from Singapore these states are relatively ethnically homogenous with a cultural and national identity that goes back centuries if not millennia, with a common history, culture, identity and language it is easier to forge a national consensus. Secondly South Korea, Taiwan, and Singapore were all key strategic U.S. allies in the cold war. This meant that not only did they get significant economic assistance the West was willing to turn a blind eye to policies that they would have (and have) lobbied against in other countries that were key to the East Asian economic miracle, such as import substitution and the protection of domestic industries. Third, they all had ways of keeping leaders accountable in some way or form, in China for instance one must rise through the party and when in leadership you are accountable to the party. It’s not perfect but it enforces discipline and has broader goals than a singular despot.

Democracy as policy

So, what does democracy have to do with development policy? In my view the link is clear, democracy makes policy makers and political leaders accountable to the people. Thus, to gain and retain political power they must respond to the needs of the people. However, this does not seem to be the case, as voters on the continent are more frequently mobilised by ethnic or religious politics than by debates around the best path to development. However, the answer to this is not to get rid of it, rather it is to make democracy better. For the past 30 years democratic reforms on the continent have tended to focus on the man (it is almost always a man) at the top or the elections themselves, rarely on citizen participation, particularly informed participation. For development policy to meet the needs of people it must be responsive to the people themselves, and the answer to this is to look beyond elections. Elections, the act of regularly choosing our leaders in a fair process, are vitally important to democracy but they should not be the only feature. When that happens, it leads to what we see in Africa today, where the political debate and climate is focused on winning the next elections. Regular citizens tend to be forgotten until the next election campaign comes around. Thus, to my mind what is needed is a way to ground policy in views and needs of the citizenry.

In Botswana they have something called a Kgotla. A public meeting usually headed by the village chief, in which deliberations are conducted and decisions are arrived at by consensus. All residents in a village are entitled to attend and can speak. The results of these deliberations are then used to form the basis of district development plans and the 5-year National Development Plans, which are then passed by parliament as legislation that guides government policy. Since independence Botswana has not only experienced stable democracy but has also been the African economy that has grown the fastest and most consistently since independence. This has been in large part due to good leadership, which holds itself and its policies accountable to the people they govern. Unlike election campaigns where politicians promise things to people and we have to hope they can follow through while in office, this system of citizen participation ensures that the voice of the people, their concerns and their priorities are not only heard but are an integral part of the policy making process.

Vox populi vox dei – the voice of the people is the voice of god

When it comes to the democracy vs development debate, I do not see a debate, I see the wrong question. The question should be, how does Africa improve its democracies to make them more responsive to the needs of her citizens. One clear way to do that is to proactively ground the policy making process in a democratic process. To create a process, which doesn’t just invite people to comment on legislation (which some countries have) but actively seeks the views of the people whom the policy will affect. For instance, if a country wants to come up with a new agricultural policy it will actively go out and seek the views of its farmers from the subsistence farmers to the industrial farmers in an open and deliberative process that allows farmers to explain the challenges that face them and their ambitions for their farms, families and communities. This would help create a policy in which they have a stake and are willing to work for and with. More broadly by grounding the policy process in a democratic process it could make policy in Africa something that is done with, by and for the people rather than to the people, and achieve real development.

Africa can and should have universal healthcare.

WE ALSO COMMIT OURSELVES to take all necessary measures to ensure that the needed resources are made available from all sources and that they are efficiently and effectively delivered. In addition, WE PLEDGE to set a target of allocating at least 15% of our annual budget to the improvement of the health sector – Abuja Declaration 2001

In April 2001, the heads of state of African Union countries met and pledged to set a target of allocating at least 15% of their annual budget to improve the health sector. Yet almost decade later, not only have just a handful of African nations allocated the pledged amount of money to their healthcare systems, but Africa still has the worst health outcomes in the world (figure 1). The poor and vulnerable still have limited access to healthcare, the insurance and coverage schemes that do exist usually miss out those in the informal sector who make up a sizable portion of the African workforce. Despite some marked improvements since 2001 too many Africans are still falling victim to diseases that could be prevented, too many Africans are being made bankrupt paying medical bills for friends and family and far too many Africans are going without the care they need lowering their quality of life.

Figure 1 source: Angus S. Deaton and Robert Tortora, People in Sub-Saharan Africa Rate Their Health And Health Care Among The Lowest In The World 2015, Health Affairs

 

If we are to think of development as being people centred, then the health of the people is crucial. Quality of life (not to mention length of life) improves significantly when everyone has access to quality healthcare at an affordable cost (which is the WHO’s definition of universal healthcare[1]). If Africa is serious about development we must get serious about healthcare, and the best way to do that is through pursuing universal healthcare. Many will say this isn’t possible, it is too expensive, or African countries simply do not have the resources, however both Botswana and Rwanda show that not only can universal healthcare be done in Africa, but there is more than one way to do it. Thus, the question African policy makers should be pursuing is what do we have to do create quality, affordable healthcare with access for all.

Lessons from Botswana and Rwanda

Rwanda and Botswana have slightly different ways of implementing universal healthcare. Botswana operates a fully public system where the governments owns over 95% of healthcare facilities. The system is built around the delivery of primary healthcare which is available through an extensive network consisting of;

  • 844 mobile stops and 338 health posts which deliver primary preventative care to all it is citizens;
  • 272 clinics (101 of which have beds) which provide outpatient and general inpatient care;
  • and finally, there are the district hospitals and the two referral hospitals which provide long term and complex care and procedures.[2]

Almost all services are free except people between the ages of 5 and 65 pay 5 pula (‘USD’ or ‘$’ 0.50) for general check-ups.

Rwanda pursues universal health through a mandatory health insurance system called Mutuelles de Sante. The scheme is community based, residents of a particular area pay about ‘USD’ or ‘$’ 6 into a community insurance pool, richer citizens are charged higher premiums and for those who can pay a 10% service fee is paid for each visit to a health centre or hospital. Like Botswana Rwanda’s system is decentralised and built around providing primary care through;

  • 34 health post which do outreach activities such as immunisations, antenatal care and family planning;
  • 18 dispensaries and 442 health centres which provide preventative and primary care, out and inpatient services and maternity care;
  • 48 district hospitals which provide inpatient and outpatient care and 4 referral hospitals which provide specialised complex care.[3]

In both countries over 90% of the population have access to affordable healthcare whose quality has seen significant improvement over the last decade.

Botswana and Rwanda hold valuable lessons for policy makers on the continent. The first and most important being that universal healthcare is possible. Secondly multiple funding models are available and there is no reason that you cannot mix match payment, insurance and tax revenue to pay for it. Third, to be effective, primary and preventative health must be at the centre of the system. Primary healthcare focuses on people and their communities, by providing preventative and early continuous care and education, treatment of illnesses before they become life threatening and the early identification of serious health issues that require specialist treatment. Fourth you need appropriate infrastructure, specifically clinics, dispensaries and health posts/centres that are situated in communities around the country and are just as important as big hospitals. If you only invest in big hospitals they will end up being crowded with patients who could have been more effectively treated in facilities in their own communities. Investing in community health centres and facilities ensures that everyone has access to healthcare close to home and that large hospitals can take care of those who need the most help. Finally, we need to invest in people, and this strikes me as part of the solution to an existing problem. Africa has far too many young men and women who are educated but unemployed, to me this presents an untapped pool of administrators, doctors, nurses, pharmacists and clinical technicians who would be needed staff a universal health care system.

Health as development

Universal healthcare in Africa is achievable but only if our governments begin to think of healthcare as just as important to development as roads, power, jobs and education. Fundamentally healthier people are happier people. Universal healthcare will significantly improve the quality of life for hundreds of millions of people, it would take away the spectre of going broke because you, or a relative got sick and it could provide millions of meaningful jobs for young men and women who would jump at the prospect.

In 1948 Great Britain was broke and had just come out of two devastating world wars in the space of three decades, yet it was in that year that they launched the National Health Service which was and still is based on 3 principles; ‘That it meet the needs of everyone, that it be free at the point of delivery, and that it be based on clinical need, not ability to pay.’[4] Today, the NHS is the institution that the British are most proud of. Today, like Britain in 1948, Africa is not rich and faces a myriad of challenges, but we can and should dream big, that all Africans should all have access to quality affordable universal healthcare. If development in Africa is to mean anything surely it must mean that Africans can live full and healthy lives, it is time to bring the Abuja declaration to life.

 

 

 

[1] http://www.who.int/health_financing/universal_coverage_definition/en/

[2] http://www.gov.bw/en/Ministries–Authorities/Ministries/MinistryofHealth-MOH/About-MOH/About-MOH/

[3] http://www.hrhconsortium.moh.gov.rw/about-rwanda/health-system/

[4] https://www.nhs.uk/nhsengland/thenhs/about/pages/nhscoreprinciples.aspx

Being poor is a crime: to develop Africa needs criminal justice reform

“We must change our lawless habits, our attitude to public office and public trust. We must change our unruly behaviour in schools, hospitals, marketplaces, motor parks, on the roads, in homes and offices. To bring about change, we must change ourselves by being law-abiding citizens” – President Muhammadu Buhari

 

It is not something at the top of the agenda of most politicians and governments and you rarely hear it on the campaign trail but Africa needs criminal justice reform. Most of the continent is still using laws that date back to the colonial era that criminalises things (like loitering, hawking and begging) that are targeted at the poor, too many people being held in jail are there awaiting trial and because they are poor they cannot afford bail. Most law enforcement across the continent is selective, and disproportionately targeted at the poor while those with money go free. This has made the police and the law an enemy of the people, rather than serve society the law is seen as a tool, a tool of repression and extortion and it is time for that to end. There have been any number of police reform efforts across the continent looking to deal with police corruption and ineffectiveness, and several governments have sought to increase police numbers to increase law enforcement coverage. However, very few have thought to look at the laws which the police and the courts are supposed to be enforcing, that if we had laws that actually sought to go after the crimes that affect people’s lives then law enforcement might work, that by making punishment and bail proportionate to crime, jails and courts could be decongested, that modern law enforcement must have modern, not colonial laws.

Colonial laws, colonial police

Governments across the continent have reformed land laws, education laws, health laws, marriage laws and many have written whole new constitutions, it is surprising that very few have thought that a modern criminal justice system, with modern laws, is necessary for development. A good example of this is Nigeria, Nigeria has 5 major criminal justice laws 4 of them (the Penal Code, the Criminal Code, the Criminal Procedure Act and the Evidence Act) all date back to the colonial era, and the Police Act dates back to pre-independence 1943[1]. As you can see from figure 1, criminal laws in much of former British colonial Africa descend from 19th-century British law.

Figure 1 Development of criminal codes in Africa during British colonialism Source: South African Litigation Centre[2]

Colonial justice was prejudiced against poor black Africans, and even though the explicitly racist provisions of the laws may be gone, their intent and the effect of policing, suppressing and intimidating poor black Africans are still there. Colonial police forces were not created to ‘protect and serve’, their primary mission was to protect the state which meant suppressing resistance, fighting crime and protecting society was a secondary mission. The symbol of this is VIP protection, is it any surprise that state officials and politicians across the continent have (often excessive) police protection while police are spread thin in the places where they are needed most.

The second key issue is the focus of colonial criminal laws, prisons, and the colonial system for used imprisonment as the primary form of punishment and as a result, Africa’s prisons are desperately overcrowded (figure 2)

Figure 2 Top 10 African jail Occupancy level (based on official capacity) – source world prisons brief

And far too many of these people are people on remand or pre-trial detention (figure 3), which means they have not been convicted of a crime yet but are waiting to face trial and are too poor to afford the bail terms.

Figure 3 Top 10 African Pre-trial detainees/remand prisoners – source world prisons brief

In short, we have old laws focusing the justice system not on the protection of its citizens but on protecting the state and in the process allowing criminals to flourish. The court system based on these old laws jails anyone for anything (such as vagrancy which makes it a crime to be poor and present) and as a result, our prisons are overcrowded, mainly with poor people.

Reform law to enforce it.

Criminal justice reform must start with the laws that underpin it. Africa must reform its criminal justice laws, so long as the heavy hand of the law falls on the poorest and most vulnerable the rule of law will remain elusive. If we want true police reform, to end the culture of impunity that enables corruption and crime then people must have trust in the laws that underpin justice. And while we are at it we might just end up decongesting our jails and giving millions a chance to resume lives put on hold.

Ideally, the debate would start with a clean slate, asking two key questions what is the purpose of these laws and do they contribute to the safety and security of the public. Reform of criminal laws would allow us to look at what should be a criminal offence, decriminalising things like loitering, begging, and hawking will stop criminalising people for simply being poor. Then we can have a discussion about decriminalising social problems such as prostitution or marijuana/khat/miraa possession, it may be controversial, but the debate should be had. How can and should we punish serious offences and misdemeanours, jail is not the only solution, particularly for petty crimes and especially for people with addiction problems or mental health problems who need help, not punishment.

If we are to change our lawless habits as President Buhari suggests then Africans must have fair laws. We must have laws that target crime and insecurity that acknowledge that poverty is not a crime, and police services that protect people, rather than colonial forces in all but name that protect the state. Development requires justice, it requires safe and secure communities, it requires the rule of law that applies to all without fear or favour. It’s time criminal justice reform was moved to the top of the agenda of African governments policy agenda.

 

[1] https://guardian.ng/features/youthspeak/time-to-mend-nigerias-broken-criminal-justice-system-1/

[2] https://southernafricalitigationcentre.org/wp-content/uploads/2017/08/05_SALC-NoJustice-Report_The-Persistence-of-Colonial-Vagrancy-Laws-in-Southern-Africa.pdf

Interest rate caps could work and be a good thing

Despite what the IMF, World Bank, Kenya Bankers Association and various private sector organisations say (as well as free market logic), interest caps can be a good thing, if done right they could actually give people access to affordable credit, but that can only happen if governments around Africa stop borrowing as much as they have been.

In August 2016 president Uhuru Kenyatta signed into law legislation that capped the interest rates charged by Kenyan banks to 4% above the Central Bank of Kenya’s (CBK) benchmark rate. This means that if you were to go to a bank in Kenya to apply for a loan today the interest rate charged would not be more than 14%, which is 4% above the CBK’s benchmark rate of 10%.

While it was a drastic step, it was a long one coming. Kenyans had long been frustrated by banks charging exorbitant interest rates often 10 or more percentage points above the CBK benchmark rate. The Donde Bill of 2000 similarly capped interest rates but was neutered by the courts, and another similar law was stopped in 2013 because of heavy lobbying by the banks in parliament. In 2016 the public had, had enough and MPs (with an election around the corner) were listening and the bill was passed, somewhat unexpectedly the president signed the law.

The consequences of the rate cap

The consequences of the law have been significant. First and most significant is that banks have severely cut lending to the private sector, with credit growth falling ominously (Figure 1) meaning that borrowers particularly small businesses have been unable to access credit, meaning that not only can they not invest in further growth they also cannot use credit to supplement working capital [1],  while ordinary households have been unable to get mortgages and car loans. This effect has been cited by people like the IMF, World Bank and the Kenya National Chamber of Commerce and industry as a cause of Kenya’s recent economic slowdown.

Figure 1 – growth of private sector growth in Kenya

Secondly, in response to falling profits from interest rates banks have cut costs, significantly. In 2016 banks in Kenya retrenched over 1000 workers (approx. 1.6% of the financial services workforce in the country), and aggressively pushed digital platforms in order to cut down on more expensive physical infrastructure (bank branches, ATM’s etc)

The third and most important thing is how banks have been making their profits. Instead of lending to people and businesses they have been lending to the government. Banks have shifted their money to buying treasury bills, which are short term loans the government takes to cover its expenses on an ongoing basis, and they are making a lot of money while doing it. The logic is simple, why lend to individuals and private businesses, where you have to spend time and money assessing each applicant for their risk and run the risk that they might not pay you back. Its much easier to lend money to the government and though the interest rates may be lower, the volumes are very large and the government will not default, essentially guaranteeing profit. This is all enabled by a government with a never-ending appetite for more and more money, the Kenya governments debts have soared over the last year and here lies the problem.  The rate cap will never achieve the goals it was meant to – making loans cheaper for ordinary Kenyan business and people – if banks can simply lend to the government and still make huge profits. On the back of this there are increasing calls on the government to repeal the rate capping laws to ‘restore’ private sector credit and boost the economy.

This would, in my view, be the wrong approach, it would simply take Kenya back to the position it was in before. Banks would be charging people and businesses blatantly usurious interest rates for loans while continuing to lend to a government with the financial appetite of a black hole, in the process making enormous profits.

Making rate caps work

Repealing the laws would be a step backwards. The focus should be on making the laws do what they were supposed to do, to which the key is stopping government borrowing so much money. The rate capping law has been a godsend for a government borrowing from every willing lender, the law made the banks much more willing to lend to the government and avoid the effects of the law.

If government appetites for borrowing money could be curbed, then the interest rate caps could work. Eventually the banks will run out of costs to cut, without treasury bills as a source of endless profits, they would have to do what banks are supposed to do, lend. Rather than caving to pressure from banks and international financial institutions (again) the top policy makers at the Kenyan treasury need to start thinking about the people the laws were meant to serve and not the accounting books in front of them.

Rate caps around the continent

Kenya is not the only country on the continent facing the problem of how to improve and increase private sector lending. Across the continent, access to credit is a major hurdle faced by businesses (figure 2)

Figure 2 Percentage of Firms Identifying Access to Finance as a Major Constraint[2]

Without credit small businesses are stuck as they cannot get the funds to operate and grow, Africa may talk glowingly about its entrepreneurial spirit but without a finance industry willing to lend to them the reality will never meet the high hopes. If rate caps can be made to work it would stand as a model that other African countries can follow, it will show that with a simple law you can fundamentally change the dynamic in the financial sector that will force banks to serve their customers, something that free market economics has been unable to do. Giving African households, businesses and entrepreneurs access to affordable could be truly game changing and contribute to solving a range of problems from housing shortages to unemployment to the high rate of failures among SME’s. However, for affordable credit to become available lawmakers and policy makers need to be bold and force the financial industry to serve Africans and that will require policy, regulation and law. For these types of laws to work it will require the government to curb its appetite to spend and borrow as much as it can get away with, something we haven’t yet quite figured out how to do.

 

[1] For many businesses flows of income do not exactly match their spending (e.g. salary must be paid monthly but clients have 60 days to pay you)

[2] https://www.afdb.org/en/news-and-events/afdb-calls-on-credit-providers-to-increase-lending-to-meet-demand-by-african-msmes-17138/

What is Development?

Freedom should not be understood to mean leadership positions or even appointments to top positions. It must be understood as the transformation of the lives ordinary people in the hostels and the ghettos; in the squatter camps; on the farms and in the mine compounds. 

It means constant consultation between leaders and members of their organisations; it demands of us to be in constant touch with the people, to understand their needs, hopes and fears; and to work together with them to improve their conditions. – Nelson Mandela

This is the question at the centre of the African story, at least when it comes to policy, yet we do not seem to have that discussion, leaving it open to be defined by those in power rather than those whose lives its supposed to change. In academia the question as to what development is much debated but it has failed to leave the confines of the ivory tower and development aid industry. Today development is too much like beauty, it’s in the eye of the beholder, every time the government builds a footbridge or a railway it claims development, economists and business leaders look at economic growth figures and call that development, the UN looks at the Human Development Index and Sustainable Development Goals and calls that development. What about the people, those for whom this development is being done, it seems to me that if the vision of development being pursued was one that came from the people, then governments and international development agencies may have more success pursuing it.  A policy shift to people centred development, that actually takes what people want and need into account would in my view make the whole notion of development much more relevant and impactful.

Roads, railways and power.

Most of the continent is busily pursuing the infrastructure gap, which can be summarised as the need for infrastructure (roads, railways, power, water and sewage systems, housing etc.). In Africa the African Development Bank has estimated that Africa needs 95 billion US dollars a year to close its own infrastructure gap[1]. Governments have latched onto this and across the continent there is a massive building program being pursued. Physical infrastructure is perfect politically, its tangible and can (if done properly) make an impact on people’s lives, without the complicated political, administrative and moral issues that come with improving education or fighting corruption. Business and banks love it because they can make significant profits funding roads, railways and power stations while saying they are contributing to ‘development’. Infrastructure is important, there is no doubt about it, a road connecting a rural community to an urban market can radically increase opportunities, electricity has and can change the lives of the poor the world over, but is it development? I don’t think so, I see infrastructure as an enabler, a building block towards development, but not development itself.

GDP growth and jobs

You cannot have a conversation about development without someone bringing up GDP growth numbers. Despite academic attempts to dethrone economic growth as the primary indicator of development it is the standard statistic that people cite. But what does GDP growth actually tell us? GDP is the value of all the goods and services produced in an economy in any given period (usually quarterly or annually). So, when it grows, it means that the country is producing more things and as a whole earning more. However, it doesn’t tell you important details such as who is earning more – are the rich getting richer or is the additional income being spread to the middle and lower income groups. It doesn’t measure standard of living, or the quality of social goods such as healthcare and education. It is just an aggregate, a useful one but without context and additional data it doesn’t tell you whether peoples lives are actually improving. When people point at GDP growth and call it development, take it with a pinch of salt.

Ask the people?

What is missing from the development debate for me is the people, most of whom are still stuck without meaningful employment or prospects of progress, far too many living in poverty. What does development mean to them. I think at its core, development would be the ability to live a life with dignity. A life where our children have a decent education that gives them a chance at a future where families can rely on the health care system and have adequate housing. A job to support you and your families. A police force and courts that are fair and protect society and a government that respects our rights. Thus, to me development is about growing the economy in such a way that provides jobs and income for the majority, building the infrastructure that enables this, investing in social services that improves quality of life and the rule of law and respect for human rights. Development isn’t just about jobs, or growth, or new roads and power stations, to me it’s about uplifting the lives of Africans, and our development policy, whether economic, education, infrastructure or law and order has to have that as its goal. But that’s just me, ideally, we should start by asking the people. Governments around the continent would benefit from broad consultation process to see what their citizens consider development and make their policy on that basis.

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[1]https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Africa%20Econo%20brief%202_Africa%20Econo%20brief%202%20(2).pdf

Welcome to Afriwonk – a blog about policy in Africa

Policy in Africa, Why?

You cannot carry out fundamental change without a certain amount of madness. In this case, it comes from nonconformity, the courage to turn your back on the old formulas, the courage to invent the future. It took the madmen of yesterday for us to be able to act with extreme clarity today. I want to be one of those madmen. We must dare to invent the future. – Thomas Sankara

The word ‘policy’ is immediately boring. It evokes images of long papers stating the obvious in as many ways as possible, civil servants labouring away writing those papers and announcements by ministers that are soon forgotten.

However, policy has real effects on peoples lives. Bad policy hurts people, almost all policy has winners and losers, good policy can transform lives and especially in Africa, most policy is never implemented properly. This is why I am writing a blog on policy in Africa there are some truly fantastic ideas out there, that could have a positive impact on peoples lives, there are bad policies which are disastrous and there is a lot of half baked policy that does a little of both. Most of it goes unnoticed by the wider public. I would like to shed some light on the world of policy in Africa, chart both the successes and failures and examine some of the ideas out there that could be transformative.

For too long the policy process in Africa has been obscured from the public and shaped by donors, the IMF, World Bank or foreign governments. I honestly believe that for truly transformative change to come to the continent we have to start shaping what our governments do ourselves. We have to throw out the conventional solutions and as Sankara said think “think with a certain amount of madness”. We need to come up with policies for Africa that fit the African context, and fix African problems. On this blog by looking at how policy succeeds and fails or taking a deeper look at new ideas I hope to make my small contribution to that, to get people thinking outside of a box that hasn’t worked as intended for half a century. Thabo Mbeki once talked about African solutions for African problems, I believe to come up with those solutions we first need to have African ideas.