This content was originally published on Forbes.com

Photo: Wiki CC

Ranked first by the World Bank, Rwanda has made a number of reforms that have improved the ease of doing business.  Close second is Georgia, which launched the first Public Service Hall in 2011 to streamline business registration.

The two countries emerged top of the 128 governments, which introduced a record 314 reforms set to benefit small and medium businesses and entrepreneurs.

Rwanda is also considered one of Africa’s fastest growing economies, thanks to its rapidly urbanizing middle class.

The improved business environment can be attributed to political will, by the government, according to Louise Kanyonga, Head of the Rwanda Development Board’s Strategy and Competitiveness Department.

“Rwanda has adopted a very bold and ambitious approach to reforming its business environment. We benchmark ourselves against the best performers in the world, and we think big,” she said.

Part of the reforms include the digitisation of land records; reducing the time needed to start a business from 43 days to 4 days; increasing access to finance by passing secured transactions laws; and simplifying tax systems, making it easy to comply to tax regulations.

Such reforms saw the country rise up 11 ranks to #29 in 2018 from #41 in 2017. It was second on the continent after Mauritius, which was ranked #20 globally.

This content was originally published on face2faceafrica.com

In fact, consumer expenditure on the continent has grown at a compound annual rate of 3.9 percent since 2010 and reached $1.4 trillion in 2015. This figure is expected to reach $2.1 trillion by 2025, and $2.5 trillion by 2030. Also, in 2030, if the Continental Free Trade Area (CFTA) is properly implemented, a single continental market for goods and services will be operational, offering corporations different points of entry to the continent and a potential market of 1.7 billion people.

Studies have shown that African consumers are savvy and brand loyal. Local vendors are entrepreneurial and present key assets for distribution chains. At the same time, the vast majority of consumer spending on the continent currently takes place in informal, roadside markets, even in those countries with the most well-developed retail and distribution markets. This disconnect signals enormous potential for growth as African consumers shift from the informal toward more formal forms of consumption—including shopping malls, supermarkets, and eventually even e-commerce—a process that is already underway in all but the most fragile and underdeveloped countries.

Even relatively frontier markets are receiving increasing attention from foreign investors, who consider factors such as favorability of the tax and regulatory environment, the stability of the political system, access to human and financial capital, and proximity to key markets. For example, when recent challenges increased the level of country risk in Nigeria, the largest African economy and historically common West African target of foreign investors, many companies looked to Ghana to establish their regional hub of operations, as its healthy business climate is bolstered by a stable, civilian-led democratic regime and increasingly peaceful neighborhood.

By 2030, the largest consumer markets will include Nigeria, Egypt, and South Africa. There will also be lucrative opportunities in Algeria, Angola, Ethiopia, Ghana, Kenya, Morocco, Sudan, Tunisia, and Tanzania, among other African countries. For example, Ethiopia has been reported to be one of the fastest-growing economies in the world over the past decade, with an average annual GDP growth rate of 10.5 percent from 2005-06 to 2015-16. In addition, with one of the highest savings rates on the continent, its economy reflects a more stable and secure consumer sentiment. The administration has also capitalized on the country’s connectivity boom by setting up the Ethiopia Commodity Exchange (ECX) to help overcome market distortions, especially in the agricultural sector. The ECX call-in service already receives over 1.5 million calls each month. Foreign companies, such as Coca-Cola and Heineken, recognize Ethiopia’s potential and have made substantial investments. More generally, African business leaders and investors such as Aliko Dangote are aggressively investing across the continent, which is a sign of their confidence in the future for growth in African consumerism.

This report offers business leaders an overview of Africa’s biggest opportunities in the consumer market sector, discussing trends and perspectives from now to 2030. It provides policymakers with an accessible perspective on the options likely to attract private investors, accelerate consumer markets’ development, and contribute to growth and poverty alleviation, all of which will also facilitate the fulfillment of the United Nation’s Sustainable Development Goals and the African Union’s Agenda 2063.

This article was originally published on Brookings.edu.

Sitting in the lobby of a Lusaka hotel last month, James Lukuku was feeling energized.

The leader of Zambia’s Republican Progressive Party, a fringe opposition group, Lukuku had gained notoriety in recent months as one of the most outspoken critics of Zambia’s relationship with China—a bond he and others say is characterized by increasingly reckless borrowing that puts Zambia’s sovereignty at risk. The 37-year-old made headlines in September when he staged a one-man protest in Lusaka, the capital, holding a sign that equated China to Hitler while wearing a T-shirt with the words “Donald Trump Help” scrawled in red and black magic marker.

 

Chinese President Xi Jinping and Zambian President Edgar Lungu after a signing ceremony at the Great Hall of the People, March 30, 2015, Beijing, China (AP photo by Feng Li).

Now, it seemed, his fellow Zambians were getting the message. The day before, Nov. 5, hundreds of residents of Kitwe, a city in the mineral-rich Copperbelt, had rioted after rumors surfaced that the government was poised to offload the state-owned timber company to a Chinese entity. Protesters, many of them local sawmill workers worried they’d soon be either out of a job or employed by foreigners, engaged in running battles with police, burned tires, and attacked and looted Chinese shops. More than 100 people were arrested.

The rumors, it turned out, weren’t true; shares of the company, known by its acronym ZAFFICO, were indeed being sold, though by being listed on the national stock exchange, rather than through a direct handover to foreigners. But that didn’t seem to matter. The mere mention of ZAFFICO’s sale played into anti-Chinese sentiment that was already running high, in part because of other controversial deals signed between Chinese firms and Zambian state-owned companies. In a country long considered one of China’s most important footholds in Africa, Lukuku was adamant that Zambia’s 17 million citizens had finally had enough.

“People have started realizing that China must be stopped,” he said, pointing to his T-shirt, which had been professionally printed and read “#say no 2China.” “Chinese investment is benefiting individuals in the ruling party and not the general citizens. China wants to lend and lend and lend. But we’re getting into a situation where we won’t be able to pay those debts off.”

China’s big push into Africa, which has seen trade increase more than 20-fold since the turn of the century, has long attracted critics. Many bemoan the cheap Chinese imports that have driven locally manufactured goods out of markets. Others say the Chinese government is too eager to do deals with despots, and its companies import too many skilled workers while mistreating local hires.

But Lukuku’s emphasis on debt is telling. Zambia, he notes, was one of 30 African countries that had much of its debt wiped off the books in the mid-2000s as part of the Heavily Indebted Poor Countries and Multilateral Debt Relief initiatives, which were jointly led by the International Monetary Fund and World Bank. Yet a decade later, the country is deep in the red again. At the end of 2017, Zambia’s external debt stood at $8.7 billion, higher than its pre-bailout peak. Overall government debt was 59 percent of gross domestic product, up from 21 percent in 2011, when the ruling Patriotic Front assumed power. The Zambia Institute for Policy Analysis and Research, a Lusaka-based think tank, warns that this level of debt is “in the territory of unsustainable.”

Zambia’s predicament is hardly unique. Today, roughly half the countries in Africa have outstanding public debt that exceeds 50 percent of GDP. As of August, the IMF had categorized six low-income African countries, including Zambia’s neighbors Zimbabwe and Mozambique, as suffering from “debt distress”—meaning they’ve already struggled to service the loans on their books. Nine others, including Zambia, were said to be at “high risk.”

James Lukuku, one of Zambia’s most outspoken critics of China, Lusaka, Nov. 6, 2018 (Photo by Jonathan W. Rosen).

Africa’s worsening debt position is the result of many factors, including a fall in global commodity prices since 2014, low levels of taxation, and governments’ growing tendency to issue Eurobonds: foreign currency-denominated securities that typically bear higher rates of interest than loans from international financial institutions or bilateral development partners. But China’s role is also critical. Although the terms of Chinese financing are generally opaque, Johns Hopkins University’s China-Africa Research Initiative estimates that China provided $143 billion of loans to Africa between 2000 and 2017, with at least 80 percent coming from Chinese state institutions. The Jubilee Debt Campaign, a U.K.-based watchdog, reckons that African governments owe roughly 20 percent of their external debt to the Chinese state—well over half of all African sovereign debt that’s owed to foreign governments. At the 2018 Forum on China-Africa Cooperation, held in Beijing in September, Chinese President Xi Jinping announced a target of an additional $60 billion of investment and loans to Africa, which suggests the flow of financing is unlikely to diminish anytime soon.

Proponents of China’s lending model note that much of this money has gone toward building infrastructure, including the roads, bridges, ports and power plants that form the building blocks of Africa’s industrialization. But it also comes with hidden costs. Critics say the personalized nature of Chinese deal-making—which lacks the transparency demanded by the World Bank, the IMF and other lenders from the West—frequently involves kickbacks to corrupt officials and too often results in vanity projects that aren’t really needed. In many cases, governments commission Chinese firms for projects without competitive tenders, leading to work that is overpriced. At other times, Chinese entities, benefiting from scale and Chinese state finance, underprice their competition, sidelining local firms and delivering shoddy work because they’ve cut too many corners.

As the loans have piled up, Western officials have increasingly accused the Chinese government of setting “debt traps”: financing projects with high risks of default, with the ultimate aim of compelling states to relinquish strategic resources. In an October speech, U.S. Vice President Mike Pence railed against “Chinese debt trap diplomacy,” arguing that the benefits of Chinese lending “flow overwhelmingly to Beijing.” Grant Harris, a senior Africa official in the Obama White House, has called Chinese debt the “methamphetamines of infrastructure finance,” writing that it’s “highly addictive, readily available, and with long-term negative effects that far outweigh any temporary high.” Concerned members of civil society within Africa frequently look to Sri Lanka as a worrisome potential precedent: Last December, after struggling to make repayments on the Chinese-financed Hambantota port—a pet project of former President Mahinda Rajapaksa that was shunned by other lenders—Sri Lanka’s government formally handed it over to China on a 99-year lease.

As of February 2018, according to government statistics, Zambia owed 28 percent of its sovereign debt to China—a figure that is likely higher, since Chinese deals sometimes go unreported and contracted debt that has not been disbursed is not included in official data. Zambia has not ceded any national assets yet. Yet ZNBC, the national radio and TV broadcaster, and ZESCO, the national power utility, have both helped guarantee their Chinese loans by establishing joint ventures with state-owned Chinese companies. Critics say these deals give China a dangerous degree of leverage over key national resources and may be a step toward ultimately signing assets over to China entirely.

They’re also easy for the media to sensationalize, and provide fodder for opposition politicians, who appear poised to exploit growing anti-Chinese sentiment ahead of Zambia’s next general election, to be held in 2021. For now, policy experts disagree on the extent to which Zambia’s Chinese debt poses a danger, as well as the country’s best bets for avoiding a full-fledged economic crisis. Nearly all agree, however, that government debt in Zambia, and across much of Africa, is rising far too quickly. With debt-servicing payments already crowding out spending on development, ordinary Zambians are feeling the pinch—and their patience with their ruling party’s coziness to China is beginning to wear thin.

“It’s difficult to see a light at the end of the tunnel,” says Trevor Simumba, a Zambian trade and investment expert and author of a recent study on Chinese lending to the country. “This is a government that doesn’t want to stop spending, and that’s a problem.”

“Already we’re seeing social pressures,” he adds, citing the unrest in Kitwe. “This tension continues to grow—and if it’s not handled well, I don’t see any good things coming.”

Zambia’s "All-Weather Friend"
For visitors to Lusaka, a city of 2 million people where upscale boulevards lined with bougainvillea trees lie adjacent to gritty townships, the country’s growing Sinification is hard to miss. One need not even leave the airport: Among China’s largest, and most controversial, projects in the country is a futuristic $360 million terminal at Kenneth Kaunda International that’s slated to open next year.

In the city itself, it’s possible to spend the afternoon shopping for furniture at China Mall, dine on Henan stewed noodles or Sichuan hot pot, and spend the evening at the smoke-filled Great Wall Casino with crowds of Chinese men around the poker table. Chinese expatriates abound—on construction sites, at the front desks of city hotels, or lounging on the weekends at one of Lusaka’s glistening shopping malls. Last December, eight Chinese men were briefly drafted as reservists into the Zambian police force, though their commissioning was undone following a public outcry. Soon, Chinese could be driving taxis. A driver working for Zambia’s Uber-style ride-hailing app, Ulendo, tells the story of a Chinese client, recently arrived, who inquired about joining the company’s fleet.

Zambia’s links with China run deeper than those of most countries in Africa. Its first Chinese-built megaproject dates to shortly after it attained independence in 1964, when Zambian President Kenneth Kaunda sought a transport link to the sea that bypassed hostile white minority regimes in Zimbabwe and South Africa. While Western governments dithered, Kaunda and Tanzanian President Julius Nyerere secured a $400 million interest-free loan from Mao Zedong to build TAZARA, a 1,160-mile railway linking Zambia’s Copperbelt to Dar es Salaam on the Tanzanian coast. In exchange for its largesse, China garnered both countries’ diplomatic support: Zambia and Tanzania were among the 23 co-sponsors of the 1971 U.N. resolution that saw China replace Taiwan at the U.N. General Assembly and Security Council. “In Kaunda and Mao, you see the consummation of a great relationship,” says Sunday Chanda, a spokesperson for the Patriotic Front, citing a range of infrastructure projects that followed in the wake of the railway. “China has been an all-weather friend to Zambia.”

Yet the relationship has not been without controversy. In 1997, when Zambia’s second president, Frederick Chiluba, privatized the country’s copper mines, Chinese companies, along with their counterparts from Canada, Switzerland, India and South Africa, pounced—taking advantage of low worldwide copper prices and a lackluster Zambian economy to seize key mining concessions at a steep discount.

From the start, China’s first Zambian concession, in the town of Chambishi, was dogged by reports of labor abuses, including low pay and poor safety conditions. An explosion near the mine killed 46 Zambian workers in 2005, its first year of operations, and sparked further outcry when reports emerged that Chinese supervisors had run for cover immediately before the blast and failed to warn their Zambian staff of looming danger. In 2006, a salary dispute at the mine resulted in workers vandalizing equipment and beating up a Chinese manager; another Chinese supervisor retaliated by wounding several Zambians with a shotgun. Then, as now, anti-Chinese sentiment became a lynchpin of opposition politics. Michael Sata, who unsuccessfully contested Zambia’s 2006 presidential election, described the Chinese as “infesters” rather than investors, and accused his opponent of handing away Zambia’s sovereignty.

A woman mourns for after an explosion near a mine on the outskirts of Kitwe, Zambia, April 21, 2005 (AP photo by Desmond Ngoma).

Yet five years later, when Sata won the presidency, his tone was strikingly different. China was no longer the boogeyman. It was now a critical source of project finance—one of many, it turns out, his Patriotic Front-led government would utilize as it went on an infrastructure-building binge. Encouraged by strong economic growth in the first decade of the century—a consequence, in part, of elevated global copper prices—Zambia inked deals for projects including highways, bridges, hospitals, water treatment plants, two 50,000-plus seat stadiums, the airport in Lusaka and another in the Copperbelt, and a 750-megawatt hydroelectric power plant. Much of this was funded by China: In 2016 alone, Zambia received $1.7 billion worth of loans from Chinese sources, including the state-owned China Exim Bank, the China Development Bank, and Industrial and Commercial Bank of China. Aided by prior debt relief, Zambia also turned to multilaterals, including the World Bank, as well as markets, issuing $3 billion worth of Eurobonds between 2012 and 2015.

Although many of these projects were needed, critics say the government took on too much debt too quickly. By the end of 2018, the ratings agency Fitch projects that external debt will reach 69 percent of GDP; in a typical low-income country, economists say that anything above 40 percent is risky. Zambia’s ability to repay has been hampered by stunted growth since 2014, when copper prices again took a hit. It doesn’t help that corruption appears to be rising, particularly since current President Edgar Lungu assumed power following Sata’s 2014 death. In one notorious episode last year, the Lungu government purchased 42 fire trucks for $42 million—reportedly a 70 percent mark-up—a deal Zambian civil society members say was designed to channel cash into the pockets of Patriotic Front cronies. In September, several European donors—already unnerved by Lungu’s growing crackdown on free expression—suspended aid after uncovering evidence of embezzlement in a program that provides cash payments to Zambia’s poorest citizens. By opening up new holes in the budget, this made Zambia’s fiscal situation even worse. It also further undermined investor confidence, leading to a depreciation of Zambia’s currency, the kwacha, and driving its bond yields above 16 percent, making borrowing even more expensive. Zambia’s Eurobonds have been among the worst performing in 2018 of any emerging market country.

The economic impact is already significant. Local businesses report that it’s becoming harder to access finance. Curious new taxes are also appearing. Some of the proposed levies, on weather reports and boreholes, are almost comically dubious. Zambia’s 2019 budget allocates more money to debt service payments than to health and education combined—areas where the government has already struggled to manage its cash flow. Civil servants routinely report delayed wages, and health facilities struggle to stock essential medicines. In October, Vespers Shimuzhila, a fourth-year student at the University of Zambia, was killed after police lobbed tear gas in her room following protests near the campus over unpaid meal allowances. The authorities credited students’ accounts the following day, but Shimuzhila’s fellow students say that if she hadn’t been killed, they might never have paid up.

Debt Traps, Bailouts and Playing the Political China Card
While it’s increasingly clear that Zambia, like other countries in Africa, is inching toward a crisis, the severity of that crisis is less obvious, as is the degree to which China is to blame. Chinese lending, even many critics concede, has done a lot of good for the continent. In addition to driving infrastructure development, economists point out that Chinese financial flows are often countercyclical, meaning they tend not to dry up like private capital during economic downturns. Interest rates on Chinese loans are also generally far lower than rates of commercial loans like Eurobonds. Lubinda Haabazoka, president of the Economics Association of Zambia, says his most pressing concern is how Zambia will repay its Eurobond principals, the first of which is due to mature in 2022. “With Eurobonds, you don’t play around when payments are due,” he says. “These are strictly commercial—not like Chinese loans that have been extended by connected individuals. Chinese debt can easily be renegotiated, restructured, or refinanced.”

Yet others argue that Chinese loans come with certain characteristics that make them particularly worrisome. Where Haabazoka sees flexibility in Beijing’s style of lending—in which deals are often made behind closed doors in state houses or government ministries—Simumba, the trade and investment consultant, sees several red flags. Not only does this provide local officials with easy avenues for corruption, he says; it also leads to white elephant projects that don’t make economic sense. Simumba cites the new Lusaka airport terminal—built without a competitive tender and designed to accommodate an unlikely 10-fold increase in traffic—as a prime example of the latter.

For projects that are necessary, he and other critics say, the Zambian government has signed deals at costs that are exorbitant, in part to facilitate kickbacks. In 2017, authorities commissioned a 321-kilometer highway from Lusaka to Ndola, one of three main cities in the Copperbelt. It is now under construction by the state owned China-Jianxi Corporation for $1.2 billion—double what the Engineering Institute of Zambia suggests it should cost and reportedly the most expensive road on a per-kilometer basis in the region. “The highway to Ndola was badly needed,” says Laura Miti, executive director of Alliance for Community Action, a Lusaka-based NGO that focuses on accountability in the public sector. “But even when the government is implementing projects that are required, the motivation always seems to be accumulating wealth. The chain of patronage—of people needing to make money from every project—is long.”

Simumba concurs, noting that China’s failure to insist on loan recipients’ good governance, unlike its lending counterparts in the West, has a tendency to backfire. “The fact is that Chinese state-owned enterprises are a conduit for corruption in Africa,” he says.

China’s purported use of loans to secure strategic assets is similarly controversial—for both Zambians and Western governments eager to check China’s rising power. For the U.S. and its allies, this is especially true in maritime locations that are strategic to China’s expanding naval footprint. In an August letter to U.S. Treasury Secretary Steven Mnuchin, a bipartisan group of U.S. senators expressed concern over China’s “predatory infrastructure financing” and its attempt to “weaponize capital” in countries key to its alleged “String of Pearls” strategy in the Indo-Pacific. The letter highlighted China’s takeover of Sri Lanka’s Hambantota port and the possibility of similar acquisitions in Djibouti and Pakistan. Notably, it appears the U.S. will increasingly mimic China’s overseas investment strategy moving forward; the all-new International Development Finance Corporation, created as part of the BUILD Act passed by Congress in October, provides an initial $60 billion for both debt and equity investments in emerging markets.

China’s potential claims to assets in landlocked Zambia may be causing less alarm in the West, but in Zambia itself they’re at the crux of rising anti-Beijing sentiment. In the past year, ZESCO, the state electricity company, and ZNBC, the national broadcaster, have each created special purpose vehicles that give Chinese entities equity stakes in two hydroelectric power plants and a company tasked with digitizing Zambia’s airwaves, respectively. The London-based Africa Confidential reported in September that ZESCO was in talks with a Chinese firm about a takeover of the entire company—a claim that created a local media frenzy, and contributed to an atmosphere of distrust that helped fuel the rioting in Kitwe two months later. Zambia’s government called the reports a gross mischaracterization. Technically, its claims that it has not pledged any public assets as collateral on Chinese borrowing are correct. But Chinese state-owned companies are indeed slowly shearing off slices of Zambian state-owned firms, which does increase Beijing’s leverage over Lusaka.

To what extent, then, is Zambia actively ceding its own sovereignty? The answer may depend, in part, on the evolution of its debt—how deeply, in the coming years, it falls into distress, and whether it’s ultimately bailed out by the IMF, or China, or left alone to suffer the consequences of its ruling party’s recklessness.

For now, the first option—an IMF bailout—doesn’t look promising. After more than two years of stalled negotiations, the fund recalled its representative to Lusaka in August, reportedly at the request of the Zambian government, on the grounds he was “spreading negative talk” among donors.

A new $360 million terminal under construction at Kenneth Kaunda International Airport in Lusaka, built by the state-owned China-Jianxi Corporation, with loans from China Exim Bank, Nov. 4, 2018 (Photo by Jonathan W. Rosen).

Haabazoka, of the Economics Association of Zambia, believes that China will eventually come to the rescue—possibly by offering to restructure Zambia’s Eurobonds as part of a bid to prove its lending isn’t predatory. With so many countries in similar straits, however, others call this wishful thinking. Indermit Gill, a professor of public policy at Duke University and an expert in emerging market finance, cautions that China may become increasingly tight-fisted moving forward due to its own shrinking current account surplus and cooling domestic economy. While it could still step in to help Zambia and others avoid a crisis, he says, the best outcome for everyone, in the long run, might be to allow Africa’s debt-ridden economies to default. “The real issue here is that these countries, because their slates got wiped clean by past debt relief, were able to go back and borrow on the market,” he says. “If they somehow get bailed out again, it will create another massive moral hazard. In a sense, I think it could be good for them to have a good old-fashioned debt crisis.”

But the human cost of this across Africa would be high: rising unemployment, overburdened health sectors and the erasure of many gains made during the continent’s last decade and a half of robust growth. In Zambia, a deepening economic crisis would also entail more scapegoating of China. Following the Kitwe riots, the atmosphere in the Copperbelt remains tense. In late November, according to South Africa’s Financial Mail, a weekly magazine, Chinese road construction projects in the region were at a standstill. Many Chinese residents had reportedly left the country as tensions simmered.

Patriotic Front leaders, meanwhile, accuse opposition figures of stoking xenophobic sentiment. Lukuku, who compares China to Hitler on grounds that its “invasion of African markets” parallels the Nazi attempt to conquer Europe, denies this, saying he has nothing against the Chinese on a personal level. He even spent six months in China on a study tour, he says, and was well-received there as a foreigner. Still, his tone and language evoke comparisons to the nativist rhetoric of his favorite foreign leader, Donald Trump, whom he admires for standing up to China and contributing to “world peace and world justice.” He even proffers a seemingly “birtherism”-inspired conspiracy theory, common among opponents of Lungu, that the president was born in neighboring Malawi and should therefore be ineligible for office.

Zambia’s main opposition leader, Hakainde Hichilema, who was detained last year on treason charges, has also emerged as an outspoken China critic. Authorities charge that he deliberately stoked the Kitwe riots by spreading rumors of ZAFFICO’s sale and accuse him of sacrificing Zambia’s stability for political expedience. “When you discredit the Chinese you discredit our infrastructure development, which is the winning formula for any election in Africa,” says the Patriotic Front’s Chanda. “All this anti-China sentiment is just a scheme ahead of the 2021 elections.”

While Chanda may have a point—xenophobia, after all, has proven a winning political strategy elsewhere—the arguments of Zambia’s opposition are not without substance. Their growing Sino-skepticism is also shared by many ordinary citizens, though few agree to speak on the record because the topic is so touchy.

During a recent visit to the tree-lined campus of the University of Zambia, located on Lusaka’s outskirts, students were eager to discuss the killing of their peer, Vespers Shimuzhila, who died in her dormitory room following the October protests over unpaid meal allowances. They angrily recalled how police fired more than 10 tear gas canisters into her room, which eventually caught on fire. They also insisted that Shimuzhila’s death and the government’s deteriorating finances were linked, and that Zambia’s financial strain was undermining higher education and dampening their hopes for the future.

When the discussion turned to China, though, most preferred to remain silent. “The topic of China here is very sensitive,” one said. “You might comment, and then the next day you find you’re no longer enrolled as a student.”

This article was originally published on worldpoliticsreview.com.

The Taiwan government is recognizing and assisting smaller but high-performance companies to help them reach their potential.

False Prophets are the “naysayers” who are always peddling a negative “Africans can’t do” perspective. In African countries, naysayers are comprised of external and local principals. The external principals are telling Africans to temper their ambition and desire for success and prosperity because Africans lack the capacity and wherewithal to achieve their goals. Many such naysayers are Western economic advisers. Local naysayers are personages that are paid by Western and other major power players to provide advice to their country’s government or are people who have drank the laced stream of ideologues who are of the opinion that African people are incapable of self-governance. 

1. https://simplicable.com/new/economic-infrastructure

Kenyan Nut and Oil Producer Aims to Empower Local Farmers
by Gayle Cottrill

4. TRENDS IN FDI TO AFRICA

This section discusses the performance and patterns of FDI in the nine selected African countries. It looks at available data, starting with aggregate stocks and flows, and then examines their disaggregation by sector and by home country origin. It relies mainly on official data collected at national government level, by the central bank or the national statistical office of each country.

It is worth introducing a cautionary note right at the outset, regarding the FDI trends and patterns presented in this section. There are severe limitations in the FDI data for all countries, and these tend to be more severe for African countries, where data problems are rife owing to capacity and resource shortages in statistical offices in governments and central banks.

Notwithstanding the many caveats regarding the data, there is little alternative but to use available data to develop a picture of FDI patterns in the countries of interest. Figure 10 shows stocks and flows, normalised as a share of GDP, for Africa as a whole (including North Africa) and for the group of nine countries. The flow data reflect the average for the three years 2012–2014, since FDI inflows into small economies can fluctuate relatively strongly from year to year, as the presence or absence of a few large projects reflects strongly in the aggregate national data. The data are taken from the UN Conference on Trade and Development (UNCTAD) FDI database, but this simply collates and reports data provided to UNCTAD by each government’s agency for collecting FDI data. For Africa as a whole, the FDI stock is 29% of GDP, not far below the figure for the world as a whole, which is 33.6%. But Figure 10 reflects wide variation among the nine countries, with only Tanzania and Uganda in the neighbourhood of the continental and global averages. Mozambique’s stock is startlingly high at 160% of GDP, whereas Kenya, perhaps also surprisingly, is the lowest, at below 10% of GDP. The flows show similar variation to the stocks, being largest as a share of GDP for those countries where the stock share is highest – Mozambique, Ghana and Zambia. It is also worth reporting the growth rates for FDI stocks since 2000, at over 20% per annum (compound annual growth) for Ghana, Mozambique, Rwanda and Uganda and between 13% and 20% for Ethiopia and Tanzania. For Kenya, Nigeria and Zambia, the stock growth rate has been around 10% per annum since 2000.

There is no single explanation for the country data and the variation across them, but one significant factor is that absolute stock levels in Africa tend be relatively small, as indicated by the GDP share – the economies are mostly small – and they are therefore often dominated by a small number of very large investments – that is, relative to the size of the destination economy. For the most part, these relatively large investments in Africa are natural resource-seeking operations in extractive industries. Their prominence explains the strong FDI-attracting performance of Tanzania and Uganda, as well as Ghana and Zambia. This is underlined by looking at Figure 10 in conjunction with Figure 11, which shows FDI stocks in the major sectors of the economy. What stands out in Figure 10 is the relatively poor performance of Nigeria in attracting FDI, notwithstanding the dominance of extractive investments in total FDI, as reflected in Figure 11. This owes to public ownership of a large proportion of the assets in the oil and gas industry, which contributes around 10% of total output in the Nigerian economy. Another way of looking at the poor Nigerian performance is to note that, although the inflow of FDI into Nigeria in 2012–2014 was about 11% of the total African inflow, in line with the country’s share of African FDI stock at 12%, this was well below the Nigerian share of Africa’s GDP at 23%.

Mozambique, by contrast, suggests very strong performance in attracting FDI; although more detailed official sector data are not available, it is well known that this is dominated by natural resource-seeking ‘mega-projects’, starting with the Mozal aluminium smelter in two phases between 1998 and 2003 and continuing with a series of large extractives projects in coal, oil and gas and titanium mining since 2007. Growth driven by the resource boom has led to a rapid and more recent increase in construction and real estate FDI inflows. fDiIntelligence, a project tracking data service, reported that in 2014 more than half of the $13.85 billion-worth of FDI projects announced for Mozambique was in construction and real estate. This measure of announced projects does not reflect actual FDI flows (or stocks): the average official FDI inflow for 2012–2014 for Mozambique was $5.57 billion, well below the above-cited figure of $13.85 billion, but still equivalent to 35% of Mozambique’s GDP for 2014 and, it may be noted, as much as 10.2% of all inflows into Africa for the year, even though Mozambique’s GDP is just 0.65% of total African GDP.

It is worth contrasting the FDI performance of Rwanda and Ethiopia with that of Kenya, as three economies in the group of nine with small shares of extractive sector FDI to date. Rwanda especially, and Ethiopia less strongly, show strong growth in FDI stocks, albeit from a very low base, with a compound annual growth rate between 2000 and 2014 of 24% and 16%, respectively, as compared with 11.7% in Kenya. Moreover, Rwanda had 0.48% of African FDI flows in 2012–2014, a tiny share but significantly larger than its share of Africa’s GDP, which was only 0.32%. Both Ethiopia’s and Kenya’s shares of African flows were well below their respective shares of African GDP, but Ethiopia attracted FDI inflows averaging over $800 million per annum, whereas Kenya’s inflows were below $600 million per annum. And, as Figure 11 shows, Ethiopia’s FDI stocks are dominated by manufacturing, much more so than Kenya’s, about two thirds of which are in services. Rwanda has been successful in attracting inflows into services (information and communications technology (ICT) and finance) as well, as opposed to manufacturing, with the respective shares being 78% and 19% of the country’s total FDI stocks.

Figure 12, drawn from a World Bank report on manufacturing FDI in Africa (Chen et al., 2015), presents unofficial data drawing on media and related reports of announced projects.

These data should be treated with extra caution even as compared with official data, as it is not clear how much cross-checking has been possible to ensure consistency of reporting across projects, nor how exhaustive the reports are. Nonetheless, they provide some indication of trends in manufacturing FDI.

Overall, Figure 12 shows that, with the important exception of Nigeria, where manufacturing FDI flows fell steeply by about two thirds in value, manufacturing FDI rose in all countries between the two periods. However, Figure 12 does not distinguish among subsectors within manufacturing, and includes large capital-intensive material beneficiation plants for some countries. This is significant for Uganda, and probably for Ghana too, although there is no further breakdown of the latter’s manufacturing FDI. It may also be significant for Rwanda, as other data in the same report suggest that a large share of Rwandan manufacturing FDI – up to 80% – may be linked to construction material production (cement). This is potentially consistent with the aggregate data for Rwanda discussed above, which suggested roughly 20% of FDI stocks were in manufacturing.

Figure 13 looks at home country distribution of FDI stocks, according to official sources. The figure separates UK data from those for the rest of the European Union (EU) and the South African data from data for the rest of SSA, since these two countries are significant asset-owners in their own right. It shows that the EU, including the UK, remains the most important owner of foreign assets in eight of the countries, Rwanda being the exception, where SSA is largest. The latter includes Mauritius, which is an important ‘third country’ routing for FDI flows, owing to favourable tax treatment of holding companies.

Intra-African FDI is a significant source of FDI for African countries (ranging from 4% in Ghana to more than 40% on Rwanda) (see Table 2, which focuses on the most recent FDI stock levels (in $ millions) from each of the nine countries as well as from South Africa, the rest of SSA and North Africa). Unsurprisingly, South Africa is an important source of FDI in each of the countries where data are available. FDI from Kenya and Nigeria is also significant in several other African countries, with Kenya in particular the source of relatively large stock levels in regional neighbours (Rwanda, Tanzania and Uganda) as well as in South Africa and Mozambique. Tanzania is the source of comparatively large FDI stocks in Mozambique and Zambia, but is also invested in Rwanda and Zambia. The bulk of FDI stocks from Ghana and Kenya is invested in SSA rather than the rest of the world, but the SSA share is smaller for FDI from Uganda. The opposite is true for Mozambique, Nigeria and Zambia, with SSA countries the destination for only small shares of their total FDI. Inward stocks of FDI from SSA are most significant relative to those from the rest of the world for Rwanda, Nigeria, Tanzania and Uganda.

The picture laid out above is partial and much of it is uncertain, given the limitations of the available data. Two further points are worth making in this regard. The first is that we need to think about FDI stocks and flows in terms of their potential positive impact on economic growth, in particular transformative growth, rather than simply in terms of the value of stocks or flows, where the effect is primarily macroeconomic via aggregate demand and the balance of payments. In this sense, size does not necessarily matter. In this regard, the distinctions between FDI that is natural resource-seeking, efficiency (low cost labour)-seeking or market-seeking is important. This is first in terms of their different effects on current economic growth and related variables such as employment, exports and fiscal revenues, and second in terms of their different effects on future economic growth and structural transformation, and related variables such as productivity growth, skills development and technology transfer and upgrading. Vertical, natural resource-seeking investments often have rather limited direct effects on the latter, even though the redirection of surpluses retained in the host country (in the form of taxes, royalties or dividends paid to local shareholders) may well be reinvested in ways that have positive indirect effects on future growth – although there is also a significant risk that they will not be invested in these ways.

However, it can be argued that the potential for transformative growth impact from this form of FDI, per dollar of investment stock (or flow), is rather low. In contrast, given the often smaller size of manufacturing investments, especially investments in activities other than material processing (chemicals, metals, cement, plantation-type crops such as sugar, coffee, soybeans), the transformative growth impact per dollar of FDI may well be greater. This suggests that looking only at the value of FDI is not sufficient. Government agencies seeking to promote such growth should look at the number of operations in which foreign firms have invested and the sectors in which these investments are located.

In contrast, given the often smaller size of manufacturing investments, especially efficiency- and market seeking investments that are in activities other than materials processing (chemicals, metals, cement, plantation-type crops such as sugar, coffee, soybeans and so on), the transformative growth impact per dollar of FDI may well be greater than for natural resource-seeking activities. This suggests that looking only at the value of FDI stocks and flows is not sufficient. Government agencies seeking to promote such growth should look at the number of operations in which foreign firms have invested and the sectors in which these investments are located, in addition to the value of the investments, as this will provide a useful guide to policies to enhance transformative growth.

The increased attention to, and resources devoted to, attracting potential Chinese manufacturing investment into Africa, as a result of developments in China’s own economy – the need for ‘rebalancing’ in China and the consequences for increased outward investment – is very positive from this perspective. There are already signs of increasing Chinese investment into African manufacturing, reflected in the well-known examples of Huajian Shoes in Ethiopia and C&H Garments in Rwanda (Manson, Financial Times, May 6 2015). These two labour-intensive light-manufacturing plants represent relatively small capital investment of a few million dollars each, and so are unlikely to have had a discernible impact on the dollar value of FDI flows or stocks reported in the charts here. But they have contributed to increases in manufacturing employment and exports, and likely also to productivity increases in manufacturing. Widespread emulation of these examples of successful investments could lead to significant upscaling of these outcomes.

There is a second point about FDI flow and stock values, which reinforces the need to focus on the growth outcomes of FDI rather than on the FDI data and the value of inflows and/or assets. The increasing prevalence of GVCs involving non-equity modes of interaction between lead firms largely located in Organisation for Economic Co-operation and Development (OECD) countries, and input supplier and/or product assembly firms located in developing countries, means much (and increasing shares of) internationalised production is taking place without being reflected in FDI flows and stocks between the ‘home’ and ‘host’ economy. Activities in the host economy underpinning its participation in GVCs may be activities of domestic firms rather than foreign firms. The continuing pertinence of GVCs may in fact lead to lower FDI stocks and flows – at least in these subsectors – than ‘would have been’ the case in earlier periods when production was usually internalised within the multinational corporation and resulted in vertical investment. To the extent this is true (and we do not know the extent), this underlines the need to focus less on the value of FDI stock and flow variables, and indeed to develop new and different metrics of the internationalisation of production in any specific economy. High returns on foreign investments would of course motivate increased inflows, but data on rates of return on foreign investments are scarce and unreliable. Only the UK Office of National Statistics (ONS) and the US Bureau for Economic Analysis (BEA) provide systematic information on FDI returns, and even here it is very limited for Africa. The BEA reports that returns to US foreign equity holdings in Africa were 8% in 2014, which was very similar to returns to US equity holdings globally (9%) and in Europe (8%). However, in manufacturing, returns in Africa of 4% were well below those globally (9%) and in Europe (10%), but they were above Asia and the Pacific (3%). The ONS reports only the return on equity for investments in Africa across all sectors for 2014, a rate of 9%, very similar to that of the US. It also reported rates of return for investments in Kenya (all sectors) at 15%, and for Nigeria, a scarcely credible 46%. The latter figure is hard to reconcile with the rather poor performance of Nigeria in attracting FDI inflows, as discussed above.

Of the group of countries of interest, only Rwanda reports data on rates of return: 16.1% for foreign investment across all sectors, 24% in manufacturing and 23% and 15% in extractives and services, respectively (National Bank of Rwanda, 2013). These numbers are much higher than those for US and UK investment in Africa, though the basis for the net profit estimate in the numerator is not clear.

To be continued in next month's issue.

Lessons from Nigeria on How Public Engagement Can Curb Corruption

Government corruption is a global challenge and a major obstacle to economic and social development. It compromises the delivery of valuable projects, distorts government and makes it impossible to transfer resources to citizens. This not only hinders investment and growth, it exacerbates social vices.

Corruption is rife in the awarding of contracts for infrastructure projects, such as roads, in Nigeria. Flickr/noise64

Our recent research looked at how the involvement of people monitoring the implementation of government projects in their community can improve service delivery and reduce corruption.

This approach is applicable to a host of developing countries. But our case study focused on Nigeria. Large portions of its population live in poverty largely due to the twin woes of government corruption and bad leadership.

Nigeria’s Budget Office of the Federation oversees budgeting and public expenditure functions across the country. But there’s a huge amount of secrecy around the budgeting process at every level of the Nigerian government. This secrecy can be used to serve the interests of corrupt government officials who don’t have to account for their actions with the amount of scrutiny that private business usually demands, but control public resources with far reaching consequences.

Our study shows that tracking government budgeted projects can ensure service delivery and reduce corruption. But to be effective, there must be transparency, community engagement, political party neutrality, and offline and online participation. This should include the use of information and communications technology, and social media.

Monitoring Public Projects

We gathered data by engaging with two NGOs that were set up to promote transparency around Nigeria’s budgeting process. These were BudgIT and Tracka.

BudgIT is Nigeria’s premier data journalism platform. It pioneered social advocacy by using an array of information and communication technology tools to simplify public spending for citizens. The result is higher standards of transparency and accountability in the government.

Tracka, BudgIT’s brainchild emerged in 2014 as a specialised tool to monitor public projects and give feedback. This includes updates on the status of projects for citizens and the government. Tracka engages active citizens who track the implementation of government projects in their communities to ensure service delivery.

Currently, however, the tool only tracks specific government capital projects called “Zonal Intervention Projects”. The details of these projects have only recently been made available to the Nigerian public thanks to the Nigeria Freedom of Information Act.

Open government budgets help remove secrecy by ensuring that all aspects of the budget are published as open data and citizens have access to.

Open government data can identify budget errors and discrepancies. It can also result in relevant feedback to the government and anti-corruption agencies. For instance, citizens can suggest beneficial programmes for their neighbourhoods.

Between May 2017 and June 2018, Tracka reached over 450,000 citizens through 246 town hall meetings across 20 states in Nigeria to encourage them to take ownership of government projects within their communities. Citizens were asked to find out about government budgeted projects within their communities and:

• Visit project sites and take pictures to share via social media platforms including Twitter and Facebook.

• Engage their elected representatives via letters, emails or tweets.

• Engage the ministry or agency in charge of the projects via letters, emails or tweets; and

• Report project and monitor progress update.

1,275 ZIP projects were tracked. Of these, 482 had been completed, 210 projects were ongoing, 367 projects had not been started, 189 had unspecified locations (meaning they couldn’t be tracked), while 27 have been abandoned.

The faces of Corruption
Our research found that corruption mainly happened in four ways.

The first involved project implementation. Sometimes projects were simply not executed, even though funds had been disbursed. And then some projects were implemented but didn’t add value to the community.

The second was under-delivery and abandonment of projects. Large sums of money were approved for projects, but the completed projects didn’t reflect the value of the money disbursed.

The third was due to vaguely specified projects allowing for budget inflation. Because adequate details weren’t provided, the budget was open to various forms of interpretation. In addition, our research found that in the case of multiple items of the same kind, the unit costs and duration of use for the budgeted items were not given. This allowed the item to be budgeted for several times.

Finally, elected representatives embarked on so-called “empowerment” projects through which goods were distributed to party loyalists. Members of the community who didn’t belong to the political party of the representatives were excluded.

Also, on several occasions, legislators branded budgeted items as personal donations to their constituents. This gave the false impression that they were using personal funds to provide these budgeted items.

This doesn’t mean that corruption can’t happen within the government budget via other means. Other researchers have found that successive governments have become very skilled in using the government budget to plunder the Nigerian state through various means. This has included inflating figures, favouritism, nepotism and inefficiency in awarding contracts, rent-seeking, looting and the diversion of public funds.

What Can be Done?
Every year the Federal Government of Nigeria allocates some funds for special intervention projects across six zones in the country. Within the past decade, about N100 billion has been allocated yearly. These special interventions – termed “Zonal Intervention Projects” – have been mired in controversy with accusations of graft and a lack of transparency.

Opening up the budgets of the Zonal Intervention Projects has meant that corruption has been uncovered because people could, for the first time, monitor projects. They could then also engage with the relevant authorities to ensure completion.

In this way service delivery was enhanced and corruption exposed.

Crucially, a key criterion for the success of this approach was the availability of all relevant information about projects. Without this, ordinary people wouldn’t have been able to make use of online and offline communication tools to monitor and give feedback on budgeted projects in the areas in which they lived.