Africa News blog

Is Kenya’s economy on the mend?

This past holiday season in Kenya was quite a contrast to the preceding year.

While in 2008 December was dry and dusty, last month was marked by heavy rains across the country, making for soggy barbecues and muddy cars for the many urban Kenyans who usually like to spend Christmas with their families in the rural areas.

The rains have killed 20 people and displaced many more through flooding. But they are vital, given the country’s reliance on agriculture, which accounts for nearly a quarter of the country’s GDP and employs about two thirds of the entire population.

A prolonged drought had cut agricultural output, forced the government to appeal for funds to feed about 10 million starving people and to liberalise imports of the staple maize crop. Together with the emerging recovery of the global economy, the rains are giving rise to optimism that the economy could grow by 3-4 percent in 2010 from an expected 2-2.5 percent in 2009.

The optimists also point to various government projects aimed at stimulating the economy, a resurgent tourism sector and sustained monetary easing by the central bank as proof of a possible rise in growth this year.

They also point to the feel-good factor surrounding the first ever football world cup final to be staged on the African continent in South Africa in June as further evidence.

But risks still abound.

Where should Africa turn for funds?

A few days back, I had the pleasure to moderate a lively debate on investment prospects in Africa involving private sector panellists and representatives of the World Bank and International Monetary Fund.   The tone was upbeat, but discussion turned heated when it came to debt restructuring in Ivory Coast.   While it might sound obscure (and I won’t go into all the details) it raised broader questions about the role of the international financial institutions in Africa and how that may be reinforced by the global financial crisis.   The concern of some in the private sector was that foreign investors with exposure to local debt in Ivory Coast looked set to suffer the same restructuring terms that holders of foreign debt would have to bear – with the approval of the IMF. Their argument was that this would discourage foreign investors from buying local bonds in Africa.   The IMF came back robustly, saying it was only playing by the rules in Ivory Coast and suggesting that investors make closer checks before putting in their money.   But private sector participants were unclear where this might leave them in future, particularly at a time many African states are eyeing bond markets again.   Some voiced broader concern over how the international financial institutions see the private sector’s role.   Before the credit crisis, a number of African countries had begun turning to international capital markets. But Eurobond plans were put on hold when global markets seized up and the institutions stepped back in to provide emergency help to hard-hit countries. Amounts have been substantial even compared to the $10 billion in concessional financing promised by China over three years. The IMF board approved a $1.4 billion standby loan arrangement for Angola this week.    The question now is how this may change the longer term balance in sources of finance for African states.   Is the private sector overly wary of institutions that are simply doing their best to give emergency help now and fend off future debt crises? Or are those institutions muscling back in to impose their dominance in telling African states how they should go about managing their debts and getting the finance they need? How will Chinese money affect the balance?

Pictures: A money dealer counts the Nigerian naira on a machine in his office in the commercial capital of Lagos, January 13, 2009. REUTERS/Akintunde Akinleye; Dominique Strauss-Kahn, managing director, International Monetary Fund (IMF), is introduced at the International Economic Forum of the Americas conference in Montreal, June 8, 2009. REUTERS/Christinne Muschi

Aid – a new model?

Africa’s century?

World Bank President Robert Zoellick ended a visit to Africa this week with the pronouncement that this century belonged to the continent’s development despite damage to economies from the global financial crisis.

Those who remember what were flagged by some at the time as “Africa’s decades” in the 1980s and 1990s may have cause for scepticism given that in many countries they turned out disastrous despite early hopes.

But Africa’s economies had been growing at an unprecedented pace before the global financial crisis struck.

Zoellick acknowledged the immediate challenge required more resources to bolster regional integration as well as investments in energy, infrastructure and agriculture.

He said Africa deserves more attention and should be made a priority at international meetings like the Group of 20 developed and developing countries in the United States next month.

To make the case for more resources from donors, whose budgets are being strained by the financial crisis, Zoellick said Africans need to show they can use aid effectively and improve governance

Will African countries be able to show they can use aid effectively enough? Will this really be Africa’s century? If it is, then how auspicious is it for it to be kicked off with foreign aid?

Africa back to the old ways?

The overthrow of Madagascar’s leader may have had nothing to do with events elsewhere in Africa, but after four violent changes of power within eight months the question is bound to arise as to whether the continent is returning to old ways.

Three years without coups between 2005 and last year had appeared to some, including foreign investors, to have indicated a fundamental change from the first turbulent decades after independence. This spate of violent overthrows could now be another reason for investors to tread more warily again, particularly as Africa feels the impact of the global financial crisis.

“Although I don’t think these instances of instability in Africa are related to each other or part of a pattern, I think there’s no doubt external constituents and businesspeople around the world will assume there is a pattern,” said Tom Cargill, Africa Programme Coordinator at London thinktank Chatham House.

The fact that coup makers have succeeded without being forced to step down or even face major censure could also embolden those who might be tempted to take power in bigger countries, where falling growth is encouraging disaffection.

“Look at … other African countries, so-called pivotal states: Nigeria is in a terrible state, so is Egypt, so is Kenya, all these so-called big countries,” said Hussein Solomon, a political science professor at the University of Pretoria.

Although there can be a tendency to group very diverse African states together, the picture is far from uniform – Ghana’s presidential election two months ago was one of Africa’s closest, but avoided major violence, reassuring investors despite an acute fiscal crisis.

But social pressures are growing across Africa as a result of the world economic crisis.

Is East Africa ready for oil?

Buoyed by recent discoveries of commercial scale oil deposits in Uganda, east African policy makers, foreign oil explorers and their local partners trooped to a five-star hotel on the Kenyan coast this week to reflect on the progress and chart future strategies.Viewed as a frontier region for oil exploration, east Africa’s first major oil find was made by Tullow Oil and Heritage Oil companies in the Albertine Basin, which spans the border between Uganda and the Democratic Republic of Congo (whose improving relations are making the exploitation of the reserves look morel ikely).Before that, Tanzania had found vast reserves of natural gas in Songo Songo and Mnazi Bay areas.Just like Rwanda, which hopes to revolutionise electricity generation in the region through methane gas from Lake Kivu, Tanzania hopes to power cars from the gas and generate much needed electricity from its natural gas.The regional economic power house Kenya has, however, had disappointing results so far in its search for oil.Although 32 wells have been sunk here since the 1950s, only traces of oil and gas have been found. It is now reprocessing data gathered over that period in the hope new knowledge and technology will reveal hidden deposits.Drilling, an expensive affair that prospectors say can cost a firm $200 million for one well, took a commercial break in the 1980s. But it has also seen a resurgence of interest, thanks to last year’s rise of crude in global markets.Kenya issued 14 exploration licenses last year and China National Offshore Oil Corporation (CNOOC) is set to sink its first well in the second half of this year in the eastern province.Kiraitu Murungi, the nation’s energy minister, told the meeting in Mombasa they were praying day and night for the new well and data reprocessing to show signs of oil.On the other hand,  Uganda — long reliant on Kenya’s ageing oil refinery for its supply of petroleum products — has grand plans for its newfound oil resources.They include the construction of a state of the art modern refinery at an estimated cost of $1.3 billion to process its oil as well as oil from any new finds in the region.Uganda’s energy and mineral development minister, Hillary Onek, spoke of the plans with a grin and added that the region, believed to share common geology, could be headed for a better future as it taps its oil and gas reserves to power development.However, as officials and oil prospectors retired to the hotel’s restaurants and beach bar for a drink in the evenings, they must have wondered if a few obstacles may not block the path to that prosperous future.The global financial crisis is weighing heavily on the finance base of some companies prospecting in the region.Lack of local skilled manpower in oil and gas industry is also worrying. So is the big question of how to equitably manage revenues from oil and gas so that oil and gas do not turn into a curse for the region as they have elsewhere on the continent.Is east Africa ready to handle oil and gas? Will oil discoveries help local communities?

Time to stop aid for Africa? An argument against

Earlier this month, Zambian economist Dambisa Moyo argued that Africa needs Western countries to cut long term aid that has brought dependency, distorted economies and fuelled bureaucracy and corruption. The comments on the blog posting suggested that many readers agreed. In a response, Savio Carvalho, Uganda country director for aid agency Oxfam GB, says that aid can help the continent escape poverty – if done in the right way:

In early January, I travelled to war-ravaged northern Uganda to a dusty village in Pobura and Kal parish in Kitgum District. We were there to see the completion of a 16km dirt road constructed by the community with support from Oxfam under an EU-funded programme.

The road is bringing benefits in the form of access to markets, education and health care. Some parents say their daughters feel safer walking to school on the road instead of through the bushes. Many families have used the wages earned from construction work to pay for school fees and medical treatment. This is the impact of aid.

Having lived and worked in east Africa, I have witnessed the positive effects of aid. But done badly, it can be very limiting and even has the potential to create more harm. To avoid this, it must be provided within an enabling environment in which it is used as a catalyst for change and not as an end in itself. Governments must show leadership through an accountable system.

For individuals, access to resources – including aid – is like an investment. Aid can build up poor people’s assets, support good governance and enhance skills and capacities to bring about transformation. But it can become a bane when it makes communities dependent, lazy and hopeless. Governments, aid agencies and the United Nations need to ensure the delivery of aid is well planned and coordinated, leading to higher self-reliance among poor communities.

Aid is also beneficial when trade is fair. There are several examples in Africa, like the case of coffee farmers in Uganda, where aid has been used effectively to improve the overall quality of the coffee seeds, thereby giving farmers better prices for their produce. When they have access to markets at home and abroad, they generate income which is ploughed back into increased output, better access to health and education, and overall improvement in the quality of their lives. To make this happen, developed countries need to stop procrastinating and put in place fair trade practices.

Aid works well if governments are accountable – in other words, when they are responsible and encourage active citizenship. On this continent, civil society is still weak and needs to be nourished. But stopping aid will not resolve frustrations about poor governance, which is partly a result of weak public scrutiny. Aid should be used to help fight corruption and promote accountability through active input from ordinary people.

Is Africa a good bet?

For those looking to invest in Africa, the best prospects are in Nigeria and Ethiopia according to a new index of potential investment destinations published this week.

But should anybody want to put money into Africa at a time the global financial crisis and falling prices for export commodities, on which the continent is so reliant, have discouraged investors who had begun to see some African countries as promising frontier markets?

“Africa is going to overtake the Middle East to become the second fastest growing region in the world after emerging Asia. It will be affected by the global financial crisis but it is much less exposed than many places,” Katharine Pulvermacher, chief executive of business consultancy African Rainbow said this week on the launch of its Star of Africa index.

The index’s creators told my colleague Peter Apps that potential growth in energy, water and communications consumption could amply reward investors taking the risk in Africa. South Africa, Mauritius and Tanzania took third, fourth and fifth place respectively on the index. Somalia, Chad and Eritrea were the least appealing countries for investors.

The International Monetary Fund’s most recent forecast of economic growth for Africa this year was 3.3 percent – much slower than the 5-6 percent of recent years but good by the standards of Western countries in recession. A senior IMF official noted recently, however, that African growth could be sharply lower than its forecasts.

“Remittances, tourism revenue and even aid, we feel could fall further,” said the IMF’s Africa Department Director Antoinette Sayeh.

The African markets that had attracted most foreign investment in recent years – not only developed South Africa but also countries such as Nigeria and Kenya – are among those that have so far been hardest hit, while smaller economies that may not have had so far to fall have been less touched.

Crisis raises AIDS funding worries

HIV infection rates in Africa have slowed since the start of the decade, but statistics still make very grim reading on the worst affected continent – of the global total of 2.1 million deaths due to AIDS in 2007, 1.6 million were in sub-Saharan Africa.

An estimated 1.7 million people were infected with HIV in sub-Saharan Africa in 2007 compared to 2.2 million new infections in 2001.

Some now fear that progress could be knocked off course by the global financial crisis, potentially reducing the funds that Western donors have available for fighting the disease and providing treatment.

An official from the Global Call to Action against Poverty said recently that Kenya had already been asked by one donor to fund HIV and tuberculosis programme itself. Other donors, such as Oxfam, have said they fear the financial crisis will lead to funding cuts as developed countries have other priorities – such as saving their financial systems.

In a speech in a South African township this week, the newly appointed head of the U.N. agency UNAIDS noted that the “world has a responsibility to stabilise the market failure”

“But the same world has a moral responsibility to make sure that four million people who are on (HIV) treatment will continue to have treatment, six million more will have access to treatment…,” said UNAIDS executive director Michel Sidibe.

UNAIDS says it needs about $25 billion to ensure universal access to HIV treatment by 2010. It says interrupting funding could lead to millions of deaths in Africa.

Hu reassures Africa?

If anyone in Africa was worried that the global financial crisis might dim China’s interest in the continent, President Hu Jintao will be visiting this week to give some reassurances – as well as possibly to temper any unrealistic hopes for the amount of assistance to be expected.

As Chris Buckley reported from Beijing, this visit is also about China showing the wider world that it is a responsible power.

The fact that none of the countries Hu will visit is among Africa’s economic or resource heavyweights – Mali, Senegal, Tanzania and Mauritius – is seen as a sign that China wants to send a message that its engagement with Africa is about much more than resources.

Trade between China and Africa rose to $107 billion last year and more deals are expected on this visit. Nearly all of Africa’s exports to China still come from a handful of countries rich in oil or minerals, though, and now the global downturn has put those in more doubt.

China’s involvement in Africa is a subject we looked at recently. Alistair Thomson in Dakar found that even if some Chinese investments in Africa were losing their lustre, many Chinese firms were taking a longer-term view to pursue strategic expansion – and some were hunting for bargains. For China, Africa also offers an important destination for exports, as any visit to even the most remote African marketplace will quickly show.

Growing trade relations with China were one of the things seen by Zambian economist Dambisa Moyo in a previous blog post as a way for Africa to emerge better off from the financial crisis and less dependent on Western aid.

But China’s involvement in Africa has brought concern from some in the West – quite apart from those who may stand to lose out on the business front – with some critics saying Beijing’s interest is too focused on the drive to secure resources and pays little heed to the kind of thing that Western donors say they want to promote, such as elections, human rights and the fight against corruption.