Brookings: Topics - Sub-Saharan Africa

The African Union at 50: The Path Forward

Fri, 17 May 2013 10:00:00 -0400

Event Information

May 17, 2013
10:00 AM - 11:30 AM EDT

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

The African Union turns 50 years old this month, marking one half century of increased political and economic cooperation across the continent. The African Union’s aims include promoting unity and solidarity among member states; enhancing peace, security and stability on the continent; and increasing good governance and international cooperation. While significant progress has been achieved in all these areas, the African Union continues to encounter distinct development challenges, including ensuring progress on regional integration, ongoing regional instability, poverty and inequality.

On May 17, the Africa Growth Initiative at Brookings marked the African Union’s 50th anniversary with a discussion on the successes and challenges of this important institution. Panelists included: Deputy Assistant Secretary for African Affairs Reuben Brigety, Georgetown University Professor of Anthropology and Foreign Service Gwendolyn Mikell and H.E. Tebelelo Seretse, ambassador of the Republic of Botswana. Brookings Senior Fellow Mwangi Kimenyi, director of the Africa Growth Initiative moderated the discussion.

Audio

The African Union at 50: The Path Forward

A Theoretical Framework for Kenya's Central Bank Macroeconometric Model

Maureen Were, Anne W. Kamau, Moses M. Sichei and Moses Kiptui — Fri, 17 May 2013 10:29:00 -0400

INTRODUCTION

This paper presents the theoretical framework for the Central Bank of Kenya (CBK) macroeconometric model. In addition, it highlights the theoretical base for the model’s main behavioral equations. The justification for the model relates to its usefulness in aiding the policymaking process at the CBK. It is expected that the model will support the Monetary Policy Committee (MPC) and Research Department in further understanding how the economy works through the complex interactions of various economic agents. The conduct of monetary policy requires fairly accurate analyses and forecasts backed up by sound economic theory and a rationale ensuring that effective monetary policy is formulated and implemented. In this regard, the model will provide consistent short-term forecasts of key macroeconomic variables such as economic growth and inflation. In addition, the model will be helpful in evaluating the impact of various shocks and policies on the economy. The MPC may also use the model as an instrument to help in structuring its communication with the public on the rationale behind its decisions.

This paper is organized as follows. The rest of Section 1 discusses the type of macro model developed, Section 2 presents the model’s logical and theoretical framework and illustrates the linkages between the monetary submodel and the other blocks of the model, Section 3 discusses the theoretical foundations of the model’s behavioral equations, and Section 4 concludes.

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Authors

Maureen Were
Anne W. Kamau
Moses M. Sichei
Moses Kiptui

Image Source: © Antony Njuguna / Reuters

The African Union Can Do More to Support Regional Integration

Michael Rettig, Anne W. Kamau and Augustus Sammy Muluvi — Fri, 17 May 2013 16:39:00 -0400

Earlier this May in Cape Town, South Africa, economists at the World Economic Forum reaffirmed that regional integration will play a key role in unleashing the continent’s growth potential. More than 10 regional economic communities (RECs) are working toward this goal in Africa, but the main framework behind this effort is the African Economic Community (AEC). The AEC was established by the Abuja Treaty in 1991 and ratified in 1994. The treaty aims to build the AEC gradually through harmonization, coordination and effective integration of Africa’s RECs, eight of which have been chosen as “pillars” of the AEC. It proposes the establishment of a continental free trade area (CFTA) by 2017, and integration of the RECs into a single customs union with a common currency, central bank and parliament by 2028. The Abuja treaty does not lay out precise, top-down steps for achieving this goal, but the African Union (AU) and the RECs have defined their relationship in working toward the AEC in the 2007 Protocol on Relations between the AU and the RECs. Towards this end, the Africa Union has embarked on various programs at the regional and sub-regional level to promote integration. Indeed, at the January 2012 AU Summit, heads of state from around the continent renewed this mission by agreeing to speed up plans for economic integration. The tone of the 2012 Summit implied an ambitious AU agenda of promoting and coordinating African integration and its accompanying benefits more quickly than before.

Like the European Union, the AEC would enjoy increased intra-African trade, improved self-sufficiency in meeting Africa’s import demand, lower poverty levels and a more peaceful interdependent existence. However, in contrast with these grand plans to move toward a CFTA, Africa’s RECs are grappling with numerous challenges. Though it is the responsibility of the RECs and individual countries to implement protocols and integrate, the AU Commission is charged with monitoring the continent’s integration process. The integration process has remained slow despite numerous efforts and working committees formed by the AU to coordinate the RECs, suggesting more work remains to be done. Now, many RECs have missed their target dates for implementing customs unions and common market requirements. For the RECs to achieve integration objectives and a CFTA to still take hold by 2017, the AU may have to play a more active role. Indeed, as the AU celebrates its 50th anniversary this May, the progress made and challenges encountered by Africa’s RECs offer valuable lessons as to how the AU can best act to improve integration, development and growth moving forward. Consider the progress of two RECs from Central and East Africa.

The East African Community (EAC) is composed of five countries in East Africa: Kenya, Uganda, Tanzania, Rwanda and Burundi. The EAC has achieved considerable milestones, having established a customs union in 2005 and a common market in 2010. It is scheduled to move to a monetary union by November of this year and ultimately to a political federation by 2017. In addition, the EAC has taken steps towards further economic integration by signing a free trade agreement with two other RECs, the Common Market for Eastern and Southern Africa (COMESA) and the Southern Africa Development Community (SADC). This progressive tripartite agreement eases the transitional problem of states’ memberships in multiple RECs and therefore multiple sets of requirements and regulations. Despite this progress, the EAC has not fully implemented their Common Market Protocol. While the EAC has made tremendous progress in eliminating tariffs, poor infrastructure and other non-tariff barriers remain. Lack of roads, railways and energy networks add to cost of doing business and make it difficult to increase intra-African trade and attract investment in the region. Moreover, neither the EAC nor the AU has effectively explained the benefits of economic integration to citizens, so the democratic leaders of member states do not feel pressure to improve their progress. In addition, national governments fear a loss in tax revenue, and, despite the elimination of border tariffs, different domestic tax rates still exist within the EAC. Indeed, harmonizing the various economic policies in the EAC has been challenging. As a result, member states are struggling to converge their macroeconomic policies in the prescribed time. Most notably, as the EAC has achieved its successes and struggled with its challenges, the AU’s efforts have barely influenced the integration process in the region.

Another REC, the Economic Community of Central African States (ECCAS), was first formed in 1983 and remained mostly dormant for 16 years until 1999. The group suffered first from states’ unwillingness to pay much-needed fees, and later from a war between some of its member states. Once the ECCAS began operating, it faced renewed challenges from competing economic communities—Rwanda left the group in 2007 to focus on its COMESA and EAC memberships. Unlike the EAC, which includes Kenya, the ECCAS lacks a high-growth country to provide leadership and capital in supporting regional infrastructure and pushing trade liberalization efforts. As a result, the ECCAS remains a group of states of varying levels of development focused on their own self-interests. The AU has an opportunity to educate the member states and apply informal pressure to make progress. In spite of these challenges, the ECCAS has achieved some successes. Many ECCAS members utilize a single currency, and capital moves freely across borders. Steps have been taken to eliminate tariffs as well, though these have yet to be fully implemented. The ECCAS has enjoyed more success in tackling peace and security—leading peace operations in the Central African Republic on two occasions and laying the foundation to host one of the AU’s planned Standby Forces. Indeed, the AU has been effective and proactive in assisting with these security gains (and also throughout the continent), yet the role of the AU in assisting with ECCAS’s economic integration successes has not been visible.

As the African Union reflects on its achievements 50 years since its creation, it should balance its successes in minimizing African conflict with the importance of doing more to promote economic integration. While addressing flashpoints of violence is an important short-term necessity, increasing intra-African trade, building an African consumer base, and networking African interdependence may offer great long-term promise. These are all steps toward the same goal of a prosperous and peaceful Africa. While the AU does not have the authority to overcome poor capacity, a lack of political will, or other challenges that African countries and RECs may face or bring to the table, it can and should better follow its mission in encouraging integration.

Under the 2007 Protocol, the AU is directly charged with working to facilitate and implement regional integration. If the AU hopes to realize its goal of a united Africa by 2028, it must better engage the continent’s RECs and assist in resolving the numerous obstacles they face. It should consider expanding its efforts to coordinate regional initiatives within low-capacity countries and work to ensure that future programs are better targeted and more visible. Further, the AU should exercise leadership in countries that seem not to have the domestic political will to move towards integration. It could also move from biannual meetings to more common ones and more vigorously assist in mobilizing resources and coordinating their application toward regional infrastructure projects to boost trade. The AU could even consider launching voluntary international governance initiatives, such as a two-term limit for political leaders or the teaching of a common language base. It can also more closely oversee and facilitate the long and difficult negotiations of protocols, and may use scorecards and penalties while monitoring their implementation to ensure that states feel pressure to meet their benchmarks. A continental free trade area in Africa holds as much potential as the one seen in Europe, but achieving success of this goal by 2017 will require the African Union to engage its regional economic communities more robustly.

Authors

Michael Rettig
Anne W. Kamau
Augustus Sammy Muluvi

Image Source: © Thierry Gouegnon / Reuters

Mukhisa Kituyi to Head the United Nations Conference on Trade and Development (UNCTAD)

Mwangi S. Kimenyi — Thu, 16 May 2013 11:26:00 -0400

The United Nations Secretary-General Ban Ki-moon has appointed Dr. Mukhisa Kituyi to be the next secretary-general of the United Nations Conference on Trade and Development (UNCTAD). An UNCTAD press release on May 16, 2013 stated that Dr. Kituyi will serve a four-year term beginning September 1, 2013. Dr. Kituyi has held several senior positions including Kenya’s minister of trade from 2003-2008. He is currently a nonresident fellow in the Africa Growth Initiative (AGI) at the Brookings Institution and was a resident scholar in 2011. Dr. Kituyi is well versed in the global trading system and, in the past, was considered a potential candidate to head organizations such as the World Trade Organization (WTO) and UNCTAD, but instead opted to join politics. A dynamic politician and intellectual, Dr. Kituyi is an excellent choice to head UNCTAD.

For AGI, the appointment of Dr. Kituyi is significant not only because he is one of our fellows but also because AGI has been emphasizing the need to increase informed African voices in global governance. We believe that African interests are not effectively represented in major global institutions, and this deficiency has contributed to the broader marginalization of the continent in global affairs. Dr. Kituyi should be an effective voice in representing Africa and other developing countries. And, as I know him, I believe this is one informed voice that the international community is unlikely to ignore.

But it will not be a smooth ride for the new secretary-general; a host of challenges await him in Geneva. First, more than in most global organizations, UNCTAD requires effective management and intellectual leadership. An internal report published last year—the Joint Inspection Unit Report—showed that UNCTAD has been suffering from a lack of effective governance. It is important that Dr. Kituyi focus on raising the bar in terms of professionalism at UNCTAD. This task will require looking into the recruitment and promotion of employees strictly based on merit. Dr. Kituyi will need to carefully evaluate personnel issues and provide the necessary motivation to ensure that the organization delivers on its mandate. Most importantly, he will have to steer the organization towards more transparency, rewarding performance instead of simple loyalty to senior management. The new secretary-general will also need to offer the intellectual leadership necessary to guide the institution through a time of major global economic change and a shifting of economic power to the South. He must therefore lead intellectually in offering alternative ideas to those emerging from traditional development institutions.

An even a more daunting challenge that the new secretary-general will face is to ensure that UNCTAD remains relevant and credible. Over the past few years, questions have been raised as to what should be the institution’s focus. Some have gone to the extent of insisting that UNCTAD should not be involved in macroeconomic and financial areas. But as its name suggests, UNCTAD was created to deal with issues relating to trade and development with a particular emphasis in developing countries. There is no doubt, therefore, that macroeconomics and finance squarely fit in the institution’s mandate. Indeed, UNCTAD used to be the forum where these issues would be negotiated in order to ensure some balance in the global economy. However, since the creation of the WTO, UNCTAD has experienced a progressive erosion of its voice. It will be the responsibility of Dr. Kituyi to reverse this trend so that UNCTAD can play its rightful role in the global economic policy scene. The new secretary-general must also position UNCTAD to better address the imbalance and unfairness in the multilateral trading rules that have shaped globalization. In UNCTAD, it is often the case that developing countries feel bullied by their developed country partners. It will be imperative for Dr. Kituyi to identify the best way to navigate issues that have come to divide developed and developing regions.

The secretary-general must also position UNCTAD so as to assist developing countries in seizing the opportunities presented by the global economy. With all the changes taking place in the world, UNCTAD has to focus on how developing countries can reap the benefits and minimize the negative effects arising from trade and globalization. This focus requires that UNCTAD take on the hard topics that are of particular interest to developing countries, including investment policy, trade in services and commodities—which it has always done—but it should also come out clearly on what path developing countries should follow. Likewise, we are likely to see an acceleration of regional trade arrangements. Most challenging are agreements involving Northern and Southern partners who cannot be considered equal partners when they negotiate. The jurisprudence on the rules governing such agreements is not commonly agreed upon. Hence, there is a need for UNCTAD to demonstrate, based on evidence, how to ensure that balanced development is achievable, especially in respect to North-South agreements.

With an incoming director general at the WTO and Dr. Kituyi at UNCTAD, the global environment offers an opportunity for the two institutions that drive trade and development to establish the missing dialogue. For this to happen, UNCTAD needs to be credible when articulating its voice in this changing global economy. This is the greatest challenge that Dr. Kituyi faces.

Authors

Mwangi S. Kimenyi

Image Source: © Ronen Zvulun / Reuters

Mapping the African Growth Landscape

Mwangi S. Kimenyi — Wed, 15 May 2013 13:29:00 -0400

Editor's Note: In this piece, Mwangi Kimenyi discusses Africa's integration following the session "Mapping the African Growth Landscape," held at this year's the World Economic Forum on Africa.

The session on Mapping the African Growth Landscape focused on the sectors that hold the greatest potential for economic growth in Africa. The session started with each of the participants voting for three sectors that they considered as having highest potential for growth. The sectors selected by most of the participants were: information communication technology and telecommunications; energy and engineering; entrepreneurship; education; manufacturing; and agriculture. The selection of these sectors was influenced not only by their potential to contribute to the growth of the economies, but also to creating jobs, especially for the youth.

Working in groups, participants identified opportunities and strategies for exploiting the economic growth potentials that the various sectors offer. Although many of the opportunities and strategies identified were specific to particular sectors, there were also some common themes. For example, innovation was identified as a source of potential growth in all sectors. This includes advances in the ICT sector, innovations in the delivery of education to ensure quality instruction or innovative approaches, developing entrepreneurship through entrepreneurship hubs and incubators or even innovations to improve governance using ICT. Innovation was also considered key to expanding the manufacturing sector and in agriculture, such as the introduction of genetically modified seeds. Participants were of the opinion that Africans must embrace innovations to fully exploit the growth opportunities of various sectors.

Participants focused on actions to exploit the growth potential afforded by the various sectors. The ICT sector was identified as having great potential for growth through expansion of mobile penetration with applications in health and industry. The sector was identified as presenting immense opportunity through the compilation of information on the population, which would assist in policies for the delivery of health services and in tax collection. Participants observed that the energy sector presents many opportunities for growth, but there is need to develop a forward-looking energy master plan for Africa, not just for individual countries. Many opportunities also exist for a diverse mix of energy sources including solar, hydro and thermal.

Read the full commentary and watch the related video »

Authors

Mwangi S. Kimenyi

Publication: World Economic Forum

Image Source: © Reuters Staff / Reuters

The Impact of School Feeding Programs in Senegal

Jessica Elaine Smith and Brandon Routman — Wed, 15 May 2013 11:36:00 -0400

Access to universal primary school education has been a key policy priority for many nations trying to meet the Millennium Development Goals (MDGs). However, learning outcomes of students in sub-Saharan African, particularly those in rural areas, remain disappointing. Of the continent’s approximately 128 million school aged children, only half will attend school and learn basic skills (see the Africa Learning Barometer). Researchers from the Consortium for Social Economic Research are examining efforts in Senegal to improve the quality of education. On March 28th, the organization’s director, Diagne Abdoulaye, gave a seminar to the Brookings’ Africa Growth Initiative on a recent study on the impact of school feeding programs on the cognitive acquisitions in rural primary schools in Senegal.

Hunger, malnutrition, and chronic fatigue are huge hurdles to learning in sub-Saharan Africa. One proposed intervention is the implementation of school feeding programs, or cantines as they are called in Senegal. Abdoulaye’s research seeks to determine whether cantines in Senegal have a significant impact on learning outcomes in the areas of reasoning, memory, comprehension and knowledge. Additionally, the study analyzes the impact of governance (in this case the presence of a parent teacher association) on student achievement.

The research sample spanned 120 schools that had no prior cantine programs in four Senegalese provinces that featured a high incidence of poverty. In half of these schools (the treatment group) feeding programs were administered and the other half (the control) received no feeding programs. Over the course of one academic year, students were given cognitive tests in two subjects, French and math.

The results showed that the feeding program contributed to the cognitive development of the students and produced positive outcomes that were more pronounced in math than in French. The school feeding program did not have a significant impact on grade repetition or the dropout rate. Also noteworthy was the finding that the program contributed to an increase in the nutritional well-being of both students and children who co-habitat with the students, such as siblings, but who do not attend school themselves. Abdoulaye also found heterogeneous impacts of the treatment on different groups of students. For instance, the treatment had a greater impact on boys compared to girls, and was especially beneficial to students who had delayed entry into school and were over 10 years old.

Abdoulaye concluded his presentation by noting that the cantine program in Senegal was effective in raising learning and nutritional outcomes among students. However, the cost of school feedings was a concern expressed by schools during the study. Abdoulaye suggests that if the school feeding programs were administered in conjunction with other health-based programs such as de-worming, the results might have been even more notable. In light of Abdoulaye’s study, programs such as cantines could be considered as a critical intervention that helps holistically address the learning needs of the poorest, most marginalized children.

Dr. Diagne Abdoulaye is the director of the Brookings Africa Growth Initiative’s partner think tank the Consortium for Social Economic Research or CRES. He visited Brookings for the meetings surrounding the visits of President Macky Sall and the presidents from Cape Verde, Malawi and Sierra Leone. For more information about his study, please contact Dr. Diagne at adiagne@cres-sn.org.

Authors

Jessica Elaine Smith
Brandon Routman

Image Source: © Finbarr O'Reilly / Reuters

The Kampala Convention: Entry Into Force

Chaloka Beyani — Mon, 13 May 2013 09:30:00 -0400

The world’s internally displaced persons (IDPs) number in the tens of millions; the majority of them are in Africa. IDPs are often profoundly vulnerable and must contend with homelessness, hunger, human rights violations and violence. For years, the African Union has sought to help mitigate the plight of IDPs and now with the entry into force of the Kampala Convention, they have formulated and adopted a legally-binding instrument that can do more to help this population. Chaloka Beyani, United Nations Special Rapporteur on the Human Rights of Internally Displaced Persons and co-director of the Brookings-LSE Project on Internal Displacement, says that the convention will also promote good governance, peace, stability and security.

Video

The Kampala Convention: Entry Into Force

Authors

Chaloka Beyani

The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

Mon, 13 May 2013 14:30:00 -0400

Event Information

May 13, 2013
2:30 PM - 4:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

With six of the ten fastest growing economies in world, sub-Saharan Africa is attracting both American and Chinese investors. The growing importance of sub-Saharan Africa to the global economy has made the region a focal point for the differing policies of the United States and China. China recently pledged significant financing to Africa over the three year period from 2012-2014, while the U.S. looks to extend the Africa Growth and Opportunity Act ahead of schedule. Despite the opportunities and growth in the region, the U.S., China and Africa all face shared and separate challenges in the areas of security, trade, investment, foreign policy, and natural resource extraction and management.

On May 13, the Africa Growth Initiative and the John L. Thornton China Center at Brookings, with the Institute for Statistical, Social, and Economic Research at the University of Ghana and the Chinese Academy of Social Sciences in Beijing, hosted a discussion to examine the relationships among the U.S., China and African states. This forum was the first in a series, which brings a balanced perspective to the examination of the challenges and opportunities for trilateral dialogue and action.

Video

The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

Audio

The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

Six Major Decision Points for Uhuru Administration

Eric Aligula and Anne W. Kamau — Sun, 12 May 2013 16:18:00 -0400

On March 4, 2013 Kenya successfully concluded elections under the new Constitution, ushering in new leadership in a devolved form of government.

President Uhuru Kenyatta and Deputy President William Ruto are faced with the surmountable but difficult task of revamping economic growth and implementing the new supreme law while seeking to deliver on promises made to Kenyans during their campaign.

The new government is faced with a tight resource environment within which to manoeuvre, hence the need to carefully identify priorities that will facilitate the quantum leap of the economy in the next five years, including measures to achieve an appropriate balance between private and public sector investments in the economy. Kenya’s economic performance in the last five years has been on the upswing from its low 2008 performance, but still faces some challenges. In 2010, 2011 and 2012, the economy grew at 5.8 percent, 4.4 percent and 4.5 percent per annum, respectively.

It is projected to grow at an annual rate of 5.1 per cent, 6.0 percent and 7.1 percent in 2013, 2014 and 2015. However, these growth rates remain below the psychological 10 per cent per annum target which is also under the national development blueprint Vision 2030.

As a matter of fact, this administration has promised a double-digit growth rate. Government resources are stretched with a rising wage bill estimated at Sh458 billion, which is about 12 per cent of gross domestic product (GDP).

Read the full article on Business Daily »

Authors

Eric Aligula
Anne W. Kamau

Publication: Business Daily

Image Source: © Marko Djurica / Reuters

World Economic Forum on Africa: Delivering Africa’s Promise

Mwangi S. Kimenyi — Mon, 06 May 2013 12:19:00 -0400

The World Economic Forum (WEF) on Africa was established in Davos, Switzerland in 1990. Since then, the Forum has brought together thousands of world leaders, government officials, business executives and policy experts to discuss the various opportunities and challenges that Africa faces in pursuit of improving the continent’s economy and quality of life of her inhabitants. Broadly, the WEF on Africa has provided a platform for high-level debates and an exchange of ideas on economic and political issues affecting the continent. The primary objective of the WEF is to improve the state of the world by engaging political, business and policy leaders in shaping regional and industry agenda. Annual forums have dealt with different themes that reflect the realities of the day consistent to the objective of the WEF. Naturally, with the major changes that have taken place in Africa’s political and economic landscape over the past 23 years, the themes of the annual forums have also varied significantly.

This year, the WEF on Africa will be held on May 8-10 in Cape Town, South Africa. The theme of the Forum is “Delivering Africa’s Promise.” This theme is informed by the good economic performance that African countries have recorded over the past decade but with the realization that the benefits of growth have not reached many of the people and that there are many forces that could reverse the growth trends in the future. Although the recent growth has resulted in a large and growing middle class, the benefits of growth have not been shared by the majority of the population. Growth has occurred amidst increasing inequality and joblessness, especially among youth. In essence, the good economic growth has not really made a difference to the livelihoods of millions of Africans. Furthermore, although it is expected that Africa will continue to record decent rates of growth over the near future, there are many potential risks to sustained growth, such as the volatile global situation, the limited diversification of the continent’s productive structures and associated dependence on commodities, the many barriers to competitive economies—such as the large infrastructure deficit—and leadership and skills shortfalls.

The Cape Town forum will focus on issues that are key to unlocking Africa’s potential and sustaining high rates of economic growth that are also inclusive. These include strategies to accelerate investments in infrastructure and agriculture, building resilience, strengthening partnerships for growth through investments, enhancing technological innovation, managing natural wealth, nurturing leadership, and creating strategies to enhance jobs and skills, among many other pertinent topics. Special sessions by leaders and development experts including the Cape Verde President Emeritus Pedro Pires, Governor of the Central Bank of Nigeria Sanusi Lamido Sanus, Founder and Group Chief Executive of the Abraaj Group Arif Naqvi, Professor Calestous Juma and Mo Ibrahim promise a rich offering of perspectives and insights on delivering Africa’s promise to her citizens.

I will be participating at the Forum and I am privileged to be the Rapporteur of one of the key plenary sessions, “Mapping the African Growth Landscape,” scheduled for May 9. This session will feature African cabinet ministers, business leaders and international policy experts. After the session, I will record a video that will be posted as part of the WEF’s Insight Reporting.

In addition to the public events, I am looking forward to participating in a session on the role of African think tanks in policymaking. This important session will seek to expound on how African think tanks can better support policymaking in finding solutions to the challenges that the continent faces.

Follow me on Twitter @mwangikimenyi as I provide insights from Cape Town.

Authors

Mwangi S. Kimenyi

Image Source: © Pascal Lauener / Reuters

Africa Answers: Five Questions for Lawrence Bategeka about Uganda’s New Oil Law

Anne W. Kamau and Andrew Westbury — Wed, 01 May 2013 15:10:00 -0400

Earlier this month, Ugandan President Yoweri Museveni signed into law the “Petroleum (Exploration, Development and Production) Act 2013.” This bill establishes how Uganda will govern its new oil resources and clears the way for what is certain to be extensive commercial production. Passage of the new bill also ends an extended period of public scrutiny about the new law, during which the international community and Ugandan civil society groups expressed grave concerns about transparency in the sector and future use of oil revenues.

We recently discussed the bill and its ramifications with Lawrence Bategeka, acting principal research fellow at Ugandan think tank Economic Policy Research Center (EPRC). EPRC is an excellent resource on Uganda’s oil industry and the general economy of East Africa. You can follow them on Twitter at @EPRC_official. Brookings recently held a joint conference in Kampala with EPRC on natural resource management in East Africa.

Please read Lawrence’s answers to our questions below.

1. What are the implications of signing the new oil bill into law?

LAWRENCE BATEGEKA: Implementation of the National Oil and Gas Policy that Uganda prepared in 2008 required a legal framework. The policy goal is “to use Uganda’s oil and gas resources to contribute to early achievement of poverty eradication and to create lasting value to society.” The two laws—(1) The Petroleum (Exploration, Development and Production) Act 2013, and (2) The Petroleum (Refining, Gas Processing and Conversion, Transportation and Storage) Act 2013—provide the framework for implementation of the National Oil and Gas Policy. These two laws make it possible for industry stakeholders to proceed with the development stage of extracting Uganda’s new oil and gas resources since roles and responsibilities for every stakeholder are now well defined. Uganda should begin to see increased foreign direct investment in its oil and gas sector. However, Ugandans will have to wait until around 2016 to start seeing revenues from oil extraction since there is a minimum period of time it will take to accomplish each stage (e.g., a minimum of three years is required for the construction of an oil refinery).

2. Oil was discovered in Uganda a while back but to date there have been no revenues from the new discoveries. Has the delayed signing of the bills had any impact in delaying revenues from the oil industry?

BATEGEKA: Yes, the delayed enactment of the laws adversely impacted Uganda’s progress in oil and gas production and therefore delayed the realization of oil revenues. Uganda discovered oil and gas in 2006, but seven years later oil production has not yet started. It is prudent to note that the country would not move forward without a legal and regulatory framework. As such, the delay allowed Uganda to understand the oil and gas industry and thus try to avoid the mistakes that other oil-rich African countries have made. The first lesson learned is that operating outside the law would have raised issues of accountability and transparency, which could have possibly led to the “Dutch Disease Syndrome.” The second lesson is that, when civil society organizations work closely with lawmakers, there is likely to be more public debate and engagement on oil matters. This is attributed to the fact that the Petroleum Exploration and Production Bill was the most debated piece of legislation with nearly eight caucuses of the ruling party and an unprecedented use of the media by both those in support of and opposed to the bill. The third lesson is that the political institutions and culture in place have a key bearing on Uganda’s natural resource path regarding the management and utilization of the oil and gas resources.

3. Uganda’s public finance bill will state how oil revenues will be used in the country. Will expediting the signing of this bill have any impact?

BATEGEKA: The public finance bill is yet to be passed by parliament for assent by the president.

Expediting the public finance bill in its current form will have adverse effects due to inconsistencies with the current Public Finance Act and other regulations. In addition, there is lack of general consensus among all stakeholders on the various clauses pertaining to the management and sharing of oil revenues, the intergenerational fund, the creation of oil districts and the distribution of royalties, among others. While the proposed law aims at reforming the public finance sector and provides for fiscal and macroeconomic policies, the public perception is that the debate on the policy may be tilted away from oil issues and emphasis on transparency and accountability or vice versa. Furthermore, the proposed bill is silent on penalties for the abuse of public funds which was clearly emphasized in the current Public Finance Act (now being repealed). The proposals to increase the threshold for supplementary budget from the 3 percent currently provided for in the Public Finance Act to 10 percent in the new draft bill raises suspicions, considering that currently much of the supplementary budget is about 85 percent allocated to State House. If approved, this clause is bound to sideline Parliament as regards approval of what the funds should be spent on.

4. In view of regional integration initiatives going on across Africa, have the bills incorporated the regional integration initiatives? Why or why not?

BATEGEKA: None of the legislation has incorporated regional initiatives or perspectives. The enactment of the laws was based on the National Oil and Gas Policy, which was prepared for Uganda. It only tacitly takes into consideration regional integration initiatives especially from the perspective of building an oil refinery to serve the energy needs of some countries in the region. Since the National Oil and Gas Policy was prepared in 2008, there are other regional developments in the oil and gas industry that may require cooperation from other countries. The laws enacted do not inhibit nor do they enhance cooperation among countries in the region in matters of oil and gas development.

The bills are silent on the competition between countries partly because they feed into the security paradigm. It is also envisaged that negotiations among countries would make the oil production process slower than it already is. There is strong desire to speed up production and realize returns on investment. The government of Uganda has considered floating its oil refinery shares to regional states including East African Community partner states in order to generate funds for the construction of the proposed refinery.

5. Has the discovery of oil in Uganda had any significant shift in the structure of the Ugandan economy?

BATEGEKA: The discovery of oil is yet to have a significant shift in the structure of the Ugandan economy. Uganda’s economy remains largely agricultural and rural. Much of the labor is still employed in agriculture (66 percent of population) and the sector contributes 22 percent to GDP. The largest contributor to GDP is the services sector at 51 percent. However, due to the speculation of oil revenues, the mid-western part of the country where the oil was discovered has experienced an increased inflow of potential investors. As a result, there is now demand in this region for services such as banking, accommodation, food and transport, among others. In response, some local entrepreneurs in the Hoima and Buliisa districts have opened up small hotels, restaurants and recreation facilities to tap into these new opportunities. The government has recently released its Vision 2040 Strategy in which oil and gas are projected to partially finance the transformation of Uganda from peasantry to a modern and prosperous country within 30 years.

Authors

Anne W. Kamau
Andrew Westbury

Image Source: © Handout . / Reuters

Pentagon Paying China — Yes, China — To Carry Data

Noah Shachtman — Mon, 29 Apr 2013 00:00:00 -0400

The Pentagon is so starved for bandwidth that it’s paying a Chinese satellite firm to help it communicate and share data.

U.S. troops operating on the African continent are now using the recently-launched Apstar-7 satellite to keep in touch and share information. And the $10 million, one-year deal lease — publicly unveiled late last week during an ordinarily-sleepy Capitol Hill subcommittee hearing — has put American politicians and policy-makers in bit of a bind. Over the last several years, the U.S. government has publicly and loudly expressed its concern that too much sensitive American data passes through Chinese electronics — and that those electronics could be sieves for Beijing’s intelligence services. But the Pentagon says it has no other choice than to use the Chinese satellite. The need for bandwidth is that great, and no other satellite firm provides the continent-wide coverage that the military requires.

“That bandwidth was available only on a Chinese satellite,” Deputy Assistant Secretary of Defense for Space Policy Doug Loverro told a House Armed Services Committee panel, in remarks first reported by InsideDefense.com. “We recognize that there is concerns across the community on the usage of Chinese satellites to support our warfighter. And yet, we also recognize that our warfighters need support, and sometimes we must go to the only place that we can get it from.”

The Apstar-7 is owned and operated by a subsidiary of the state-controlled China Satellite Communication Company, which counts the son of former Chinese premier Wen Jiabao as itschairman. But the Pentagon insists that any data passed through the Apstar-7 is protected from any potential eavesdropping by Beijing. The satellite uplinks and downlinks are encrypted, and unspecified “additional transmission security” procedures cover the data in transit, according to Lt. Col. Damien Pickart, a Defense Department spokesperson.

“We reviewed all the security concerns, all of the business concerns with such a lease,” Loverro said. “And so from that perspective, I’m very pleased with what we did. And yet, I think the larger issue is we don’t have a clear policy laid out on how do we assess whether or not we want to do this as a department, as opposed to just a response to a need.”

Every new drone feed and every new soldier with a satellite radio creates more appetite for bandwidth — an appetite the military can’t hope to fill with military spacecraft alone. To try to keep up, the Pentagon has leased bandwidth from commercial carriers for more than a decade. And the next decade should bring even more commercial deals; in March, the Army announced it was looking for new satellite firms to help troops in Afghanistan communicate. According to a 2008 Intelligence Science Board study (.pdf) — one of the few public reports on the subject — demand for satellite communications could grow from about 30 gigabits per second to 80 gigabits a decade from now.

The Chinese are poised to help fill that need — especially over Africa, where Beijing has deep business and strategic interests. In 2012, China for the first time launched more rockets into space than the U.S. – including the Chinasat 12 and Apstar-7 communications satellites.

Relying on Chinese companies could be a problematic solution to the bandwidth crunch, however. U.S. officials have in recent years publicly accused Chinese telecommunications firms of being, in effect, subcontractors of Beijing’s spies. Under pressure from the Obama administration and Congress, the Chinese company Huawei was rebuffed in its attempts to purchase network infrastructure manufacturer 3Com; in 2010, Sprint dropped China’s ZTE from a major U.S. telecommunications infrastructure contract after similar prodding. Last September, executives from the Huawei and ZTE were brought before the House intelligence committee and told, in effect, to prove that they weren’t passing data back to Beijing. “There’s concern because the Chinese government can use these companies and use their technology to get information,” Rep. Dutch Ruppersberger, said at the time. The executives pushed back against the charges, and no definitive links to espionage operations were uncovered. But the suspicion remains. And it isn’t contained to these two firms.

“I’m startled,” says Dean Cheng, a research fellow and veteran China-watcher at the Heritage Foundation. “Is this risky? Well, since the satellite was openly contracted, they [the Chinese] know who is using which transponders. And I suspect they’re making a copy of all of it.”

Even if the data passing over the Apstar-7 is encrypted, the coded traffic could be used to give Chinese cryptanalysts valuable clues about how the American military obfuscates its information. “This is giving it to them in a nice, neat little package. I think there is a potential security concern.”

And even if the Chinese don’t intercept the data, there’s always the danger of them suddenly deciding to block service to the American military.

For his part, Loverro says the Department of Defense will be reviewing its procedures to ensure that future satellite communications deals both let troops talk and let them talk in private. The Pentagon will get another opportunity shortly: the Apstar-7 deal is up on May 14, and can be renewed for up to three more years.

Authors

Noah Shachtman

Publication: Danger Room (Wired)

Livelihoods, Gender and Displacement in Côte d’Ivoire

Eric Levron — Mon, 29 Apr 2013 00:00:00 -0400

Note: The full version of this paper is available in French with an accompanying English overview.

Internal displacement is not a new phenomenon in Côte d’Ivoire. Conflict and displacement in Côte d’Ivoire are linked to competition for political power, the economic downturn, and a corresponding sharp increase in poverty in a country that had previously enjoyed a comparatively high standard of development.

In many ways, women have borne the brunt of the country’s conflicts and its protracted displacement situation. Displaced women suffered numerous human rights violations, and along with their families have struggled to re-establish sustainable livelihoods – both while displaced, and upon returning to their communities or seeking out another solution to their displacement. The conflict resulted in the destruction of the productive capital of thousands of households, and a marked increase in single-parent families due to the death of many men in the violence. Looting, destruction and land-grabbing have undercut the economic sectors (including subsistence agriculture and petty trade) that typically employ the poorest of the poor, particularly female heads of household. This has undermined the ability of many displaced families to recover from the economic losses associated with their forced migration, and to secure sustainable solutions to their displacement. Inequitable property inheritance practices and heightened risk of sexual and gender-based violence, particularly amongst internally displaced young women, further complicate the efforts of displaced women to make a living.

This research underlines the importance of understanding the gender dimensions of IDP livelihoods, taking into particular account household-level dynamics and the broader socio-economic context within which livelihood interventions are implemented. While many displaced women assume new roles as primary breadwinners for their families, this research suggests that the ability of displaced women to develop relevant adaptation strategies, particularly through the creation of sustainable livelihoods, depends in part on the socio-economic status of their households before the crisis. Without other employed household members, many middle class Ivorian women cut off from their area of origin or from their social networks encountered particular difficulties adapting and re-establishing means of existence – they are the main victims of a conflict-induced drop in social status. Women with access to support structures and who were economically active before the crisis – those aged 30 to 50 years – have been best able to develop and implement strategies to save money and improve their livelihoods.

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Authors

Eric Levron

Creating Jobs Where Institutions Matter: Addressing South Africa’s Unemployment Problem

Anne W. Kamau and Andrew Westbury — Fri, 26 Apr 2013 16:30:00 -0400

The South African think tank the Development Policy Research Unit (DPRU) at the University of Cape Town recently conducted some thoughtful analysis on what exactly occludes employment in South Africa. According to DPRU Director Haroon Bhorat, “Institutions matter and nowhere more so than within the labor regulatory environment.” Under the auspices of South Africa’s Labor Relations Act, the Commission for Conciliation, Mediation, and Arbitration (CCMA) is charged with handling all employment disputes in the country. Each year, this group manages nearly 5,300 such claims, with cases ranging allegations of wrongful dismisals to contract violations and requests for wage increases. DPRU’s analysis of these claims indicates empirically that the faster these disputes can be resolved, the more jobs created in the market. In contrast, when these are drawn out, employment rates suffer severely. Indeed, according to the DPRU working paper, Do Industrial Disputes Reduce Employment? Evidence from South Africa, even slight changes with the efficiency of CCMA processes can produce dramatic results. For example, DPRU estimates that a 1 percentage reduction in the agency’s own efficiency index effectively terminates employment for nearly 2,702 South Africans.

Fortunately, the CCMA is actually quite capable. A majority of cases are adjudicated within approximately one month, and the high usage rates of the system demonstrate “the accessibility and legitimacy of the institution”. Unfortunately, despite the crucial role the CCMA plays in South Africa’s labor market, the entity is under-resourced. CCMA is currently funded on the “basis of previous financial year’s caseload”, which allow for little flexibility when the volatility of the current world economy precipitates increase layoffs or other unforeseen market action. Either way, more secure funding and better support of the CCMA seems almost a prerequisite for increased employment in South Africa. The DPRU writes in their working paper, A Nation in Search of Jobs: Six Possible Policy Suggestions for Employment Creation in South Africa: “That an institution as central to labor market efficiency in the country as the CCMA needs to worry about cash flow is an example of a labor market rigidity which can be avoided.” With South Africa suffering from nearly 25 percent unemployment, funding institutions seems like a simple step that can support both workers and employers.

For more information, you can also read recent commentary on South Africa’s rapid economic growth but continued challenges with inequality by scholars from the Brookings Africa Growth Initiative and DPRU in the February edition of Yale Global Online.

Authors

Anne W. Kamau
Andrew Westbury

Image Source: © Siphiwe Sibeko / Reuters

Is Africa Rising or Not? A Discussion of Economic Opportunities and Development Challenges in Africa

Thu, 25 Apr 2013 09:30:00 -0400

Event Information

April 25, 2013
9:30 AM - 10:30 AM EDT

Senate Visitor Center
U.S. Capitol
Washington, DC 20510

On Thursday, April 25, the Africa Growth Initiative at Brookings (AGI) and the Congressional African Staff Association (CASA) hosted a briefing for congressional staffers on whether Africa’s recent growth reflects the economic opportunity that many suggest, or if the region’s inequality and other challenges will stand in the way of the continent’s potential being realized. Panelists included Brookings Senior Fellow John Page and Joseph Kweku Assan, assistant professor of political economy of sustainable development at Brandeis University. Andrew Westbury, associate director of the Africa Growth Initiative, moderated the discussion.

This event is part of the Africa Policy Dialogue on the Hill, a monthly congressional briefing hosted by AGI and CASA on topical issues relevant to Africa’s growth and security.

TRANSCRIPT

MR. WESTBURY: Okay. I guess I will act as -- I’ll do the introductions and also try to moderate the discussion, but I don’t think I’ll have a lot to worry about here with this unruly crowd we have.

So, my name is Andrew Westbury, I think I’ve met all of you before, and I’m the assistant director of the Africa Growth Initiative, and it’s pleasure to welcome you to the April edition of the Africa Policy Dialogue on the Hill.

Some of you are repeat customers and have been to these events before, but on a monthly basis we try to hold a breakfast briefing in collaboration with our colleagues at the Congressional African Staff Association, one of them, Greg Simpkins, who should be joining us shortly, and the goal is to create a forum for informed discussion about African economic issues for the United States Congress on Capitol Hill.

Read the full transcript »

Event Materials

042513BROOKINGSAGI

Africa Answers: Five Questions about Sustainable Inclusive Growth in South Africa

Julius Agbor — Tue, 23 Apr 2013 16:22:00 -0400

Last week, the Africa Growth Initiative at Brookings hosted an event with South African Finance Minister Pravin Gordhan. The goal of the forum was to explore ways to support inclusive growth in South Africa, where unemployment stands at nearly 25 percent.

After the forum, I discussed these issues with Haroon Bhorat, director of the South African think tank the Development Policy Research Unit. Below are Haroon’s answers to my questions. The DPRU, a partner think tank of the Africa Growth Initiative, is a great resource on employment and inequality in South Africa and across the region. Read more about the DPRU on their Web site and also follow them on Facebook.

Julius Agbor: During his recent visit to Brookings, the South African Finance Minister, Honorable Pravin Gordhan, underscored the challenges of inclusive growth in South Africa. In order of importance, what are these challenges and do you think they are surmountable in the short term?

Haroon Bhorat: The key challenges revolve around an insufficiently high level of economic growth and the extreme levels of income inequality and unemployment: South Africa has one of the highest levels of inequality in the world, and, in the sample of emerging markets, possibly the highest. The Gini coefficient for South Africa is currently 0.66. Unemployment, using the International Labor Organization’s definition of joblessness, currently stands at about 25 percent for the fourth quarter of 2012. Following the Great Recession where close to 1 million jobs were lost in South Africa and in an environment where economic growth has yet to breach the 3 percent level, solving these twin distributional problems in the short run will be extremely difficult.

This new growth path would necessarily require both a signficant increase in the levels of economic growth and a sharp departure from the current growth trajectory. The current trajectory is based on a dependence on heavy manufacturing, the resources sector and foreign equity to finance the current account deficit, while the retail sector is the key provider of long-run employment. Obviously, this deficit-financed, consumption growth model is not an optimal strategy for long-run welfare gains in South Africa.

Agbor: South Africa’s current macroeconomic fundamentals and microeconomic framework leave much to be desired. For instance, the yield on a South African 10-year government bond is at a record high of 6.2 percent while the high incidence of HIV/AIDS coupled with an acute shortage of skilled man-power is seriously undermining both the productive potential of the economy and its ability to attract foreign investors. Do you think that the South African government needs to respond differently to these challenges? If so, how would you recommend it respond?

Bhorat: Foreign investors, both in equity markets and in the real economy, are concerned in part about social instability in a society borne out of high levels of crime, unemployment and inequality. In addition, a vocal, strong trade union movement viewed as politically influential as well as a signficant skills constraint have caused foreign investors to remain coy about South Africa. On the other hand, those who have invested or are invested in the economy often note South Africa’s strong rule of law, globally leading financial sector, and transport and telecommunication infrastructure which rivals that found in the West. In turn, high dividend streams with a relatively high real interest rate differential keep foreign investors interested in South Africa. In the short-run then, these strong companies and other South African endowments will keep foreign investors interested in the economy. In the long-run, however, a more creative growth trajectory and policy environment is required from government. We need a strategy and an environment that makes those difficult decisions in order to shift the economy on to a more labor-intensive and competitive growth path. Supply- and demand-side policies ranging from improving the quality of schooling to anti-trust interventions are all necessary.

Agbor: For quite a while now, low wages seem to characterize South Africa’s labor market, which is consistent with the high level of unemployment in the country. At the same time, there is no evidence of marked improvements in labor productivity and competitiveness of the South African economy. What is going on in South Africa?

Bhorat: We are in a low-level equilibrium trap of tepid growth and signficant labor disequilibrium in the factor and product markets. Certainly a more competitive wage environment, as well as more deregulated product markets, must be part of the answer. Bold industrial policy that is narrowed to very specific sectors and provides some form of infant industry protection is essential. No country has managed to build prosperity without the growth of the light manufacturing sector—and South Africa will be no different. Building a light manufacturing sector will be critical to generating the levels of employment this economy desperately requires.

Agbor: Many believe that anti-trust legislation is weakly enforced in South Africa and that corporate bodies and unions are too strong. To what extent do you think a rebound of the South African economy depends on reforms in these key areas?

Bhorat: There is a view that strong business and strong labor are able to divide the rents from growth in some semi-consensual form. That view then extends to the notion that this situation has generated a growth path built essentially on high dividends and high wages to the exclusion of the unemployed. This is obviously an undesirable outcome yet the solution does not necessarily lie in lower wages, which would generate the kind of social instability South Africa cannot afford. Rather, an acceptable outcome would come from a conscious effort by the South African government at generating creative solutions that include the unemployed and those in the informal economy into the growth process.

Presently a social compact is assured through a highly redistributive state. Hence, this government spending on social assistance constitutes 10.4 percent of total expenditure and 3.4 percent of GDP, which is high by middle-income country standards. This is not fiscally sustainable nor incentive compatible with the requirements of a competitive developing country economy. Hence, a key part of the reform package is not only more aggressive anti-trust legislation, but also interventions designed to improve the opportunities and capabilities of the informal economy as well as the unemployed. These can range from re-engineering state procurement policies to reducing the search costs of the unemployed.

Agbor: Does South Africa have a particular economic role to play in Africa? Is it a faciliator of investment in the region and beyond?

Bhorat: As Africa’s largest economy, South Africa remains central to the region and the continent’s future. That being said, Africa’s largest economy remains locked into a low-growth trap within a continent with some of the world’s fastest growing economies. South Africa’s short-run opportunity is to utilize its strong physical, financial and telecommunication infrastructure as a platform to attract foreign firms seeking a foothold in Africa. The 20 percent purchase by the Industrial and Commercial Bank of China of Standard Bank of South Africa in 2008 is indicative of this type of indirect impact the growth of African economies is having on South Africa.

That being said, South African firms are dominant in retail, mining and telecommuncations on the continent. The long-run growth question is whether these companies are able to capitalize on their early mover advantage and become the dominant investors in a region where FDI flows from China, India, Malaysia and other emerging markets are expanding rapidly.

Authors

Julius Agbor

From Bottom Billion to Top Trillion: Using Commodity-Backed Securities to Support the Future of Africa’s Resource Economies

Vera Songwe — Wed, 17 Apr 2013 13:00:00 -0400

The surge in mineral discoveries in Africa provides a vehicle through which countries can transform their economies at a faster pace. The use of commodity-backed securities to raise to fuel growth and create jobs is within reach. It is estimated that Africa is home to 30 percent of known global mineral resources, and, for some commodities (particularly, uranium, platinum, diamonds and gold), Africa’s share is more than 50 percent. These numbers are projected to increase over time. Increasingly, hitherto non-resource rich countries are becoming resource rich. Senegal’s top export commodity in 2012, for example, was gold. Mineral exports as a share of GDP in Senegal doubled over the last decade from 3.1 percent in 2000 to 6.3 percent in 2012. In a few years, Senegal, like many other African countries, is hoping to become part of a much talked about set of countries in the region—the commodity or resource-rich countries. Similarly, coal production in Mozambique’s Tete province is projected to reach 100 million metric tons in a decade, resulting in an additional $2 billion of fiscal revenues by 2020. Iron ore mining in Sierra Leone and Mauritania is expected to boost their GDP growth by over 25 percent by 2020.

This week the international development community will meet in Washington, D.C. for the IMF and World Bank Spring meetings to discuss the future of development financing and the state of the world economy. This event precedes the 10-day trip of President Xi Jinping of China to Africa two weeks ago, during which he signed about 70 cooperation agreements with countries including South Africa, Tanzania and the Republic of the Congo Most of the China-Africa agreements had one thing in common: the exchange of resources for investments in large-scale infrastructure to finance development.

How can African countries use their mineral resources to accelerate overall economic growth? The visit of the Chinese President Xi Jinping to Africa may provide a clear and bold answer. With China, Africa has entered into a system of spot trading its mineral resources for infrastructure. The process is seen to be heavily lopsided by most, as African countries do not always get the most critical infrastructure in return for the sale of their commodities. Many countries enter into these agreements in an attempt to respond to the growing needs of their populations for services, infrastructure and jobs. Unfortunately, in general, these exchanges have not been transformational.

Following the 2008 global financial crisis, it became clear that African countries could no longer rely on development aid to fund the big transformative infrastructure and social projects needed to sustain and accelerate growth.

Following the 2008 global financial crisis, it became clear that African countries could no longer rely on development aid to fund the big transformative infrastructure and social projects needed to sustain and accelerate growth. Africa needs over $75 billion to fund its infrastructure needs. The amounts needed to improve access and quality of education and health care are substantial. There is a growing sense of urgency on the continent as leaders look for solutions and their populations grow impatient. The enthusiasm around the BRICS (Brazil, Russia, India, China and South Africa) Bank, Global Infrastructure Bank and others is a manifestation of this need. Sub-Saharan Africa, with 800 million people, has about 80 gigawatts of energy generation capacity—on average supplied at prohibitive costs for businesses. This is about the same capacity as Spain, with 40 million inhabitants. By 2030, there will be over a billion people demanding energy, with over 50 percent of them residing in cities. The growing middle class will demand better housing and transport. The growing number of youth will demand better education systems and jobs. African governments are aware of this yawning expectations gap and the threat it poses.

The optimism about growth in Africa could quickly turn into despair if governments are not able to provide the basic services needed to fulfill growing expectations. As citizens exhaust their capacity to wait for a chance to participate in this now much-touted growth of the continent, the celebration of Africa as the rising continent could quickly dissipate. The recent turmoil in Mali, Niger and the Central African Republic may be the first warning signs of this impatience. As we have seen in the Arab Spring countries as well, there comes a time when citizens are no longer willing to stand by and wait while the education system fails to deliver, good jobs are only for the elite, and parts of the country are left behind. The new challenge for Africa is how to manage the continents’ vast natural resources so as to accelerate growth that is inclusive and delivers for all.

How Does Africa Sustain Growth?

President Xi Jinping and China’s cooperation agreements offer a solution that is attractive because of its expediency. The international community and the international finance institutions working with the private sector can offer another option to finance infrastructure and other economic development plans—commodity-backed securities (CBS). The resource curse could become a blessing if Africa worked to bring the future forward, if African governments used future prospects to build the present realities in a classical over-lapping generations model where future revenue helps build the present. With Africa’s demographic structure, investments must be made today to benefit from demographic dividend. This approach can help countries fast forward their development by a full generation.

While the world continues to look for ways to fully recover from the financial crisis, there are some lessons we must not totally discard. The development of a U.S. mortgage market helped accelerate growth in the U.S. and today the U.K. is once again trying to use mortgages to spur growth.

While the world continues to look for ways to fully recover from the financial crisis, there are some lessons we must not totally discard. The development of a U.S. mortgage market helped accelerate growth in the U.S. and today the U.K. is once again trying to use mortgages to spur growth. The concept of mortgages and mortgage-backed securities is fundamentally a sound one if the underlying assets are secure, are properly valued and have an appropriate regulatory framework.

How can mineral resource-rich countries in Africa take a page out of the book on the development of new innovative financial instruments to serve infrastructure needs in the Africa? It is time that these countries began seriously considering, in a transparent manner, the use of commodity-backed securities as a new asset class to leverage financing for their development.

Commodity-Backed Securities Should be Considered Now

Concessional resources have dried up and private resources are in search of better returns. With the financial crisis of 2008 and the current eurozone crisis, the flow of concessional resources to many developing countries has slowed considerably. On the other hand, with the low interest rates in the West, investors are increasingly looking to resource-rich economies as a way of diversifying investments and seeking higher returns. The largest public pension in Los Angeles, Calpers, for example, is investing $800 million in commodities over the next two years—a quarter of these investments will be in actively managed derivatives—as it tries to diversify its traditional portfolio. Like Calpers, many other institutional investors are ready to enter into commodity securities trading but need clear risk mitigation frameworks.

Innovative technologies in the mining sector allow for a better assessment of countries’ reserves. New pattern recognition technology and other mineral exploration technology innovations are increasingly being launched in the mining field. These technologies will allow for better accuracy in the assessment of reserves and potentials. Development of these technologies should, over time, lead to more efficient exploration and lower costs, which continue to be an impediment for more exploration on the continent. Improvements in extraction technology are also increasing making previously uncompetitive mines more attractive. Together, these technological developments should make valuation of countries’ mineral assets easier to establish and hence create an environment for improved valuation of country assets.

The expansion of new markets for commodity trading is likely to continue as new commodities are introduced on trading floors at a faster pace.

Mineral assets are easier to price. Mineral pricing mechanisms are increasingly public, with the advent of the Australian stock exchange and now the Shanghai futures exchange. The expansion of new markets for commodity trading is likely to continue as new commodities are introduced on trading floors at a faster pace. This open floor trading improves price transparency and helps low-income, resource-rich countries with little financial expertise improve their negotiating skills. Some more work is needed to develop index prices for all commodities but with the rapid development of more mineral-traded platforms and China’s continued demand for minerals, the trend will continue to be toward more market and price discovery.

Greater transparency should lead to more reliable and credible commodity-backed securities. As a result of the financial crisis, there has been a focus on strengthening the regulatory framework for trading, such as the Dodd-Frank regulation and other Financial Stability Board recommendations. There has also been scrutiny placed on the ratings industry and a subsequent reform of their methodologies for structured securities. These improvements in transparency and disclosure should help give investors the comfort needed to provide debt financing backed by future commodity receivables.

Low debt levels in many countries and low interest rates make borrowing an attractive proposition. An important element of the commodity securitization proposal is the fact that countries will be able to raise substantial amounts of capital to fund transformational projects. This move implies debt creation. However, if the rate of return on the investment is higher than the interest rate on the debt, meaning over time the investment will contribute in reducing the debt stock, then it is acceptable. In effect, countries need not worry about the ability to service the debt as this will be assured through the future exploitation of resources and increasingly by the return on the investments. With interest rates at their lowest levels in decades, and set to stay low, borrowing by developing African countries on the market will be cheaper comparatively and could be made concessional if an instrument such as the commodity-backed security were traded through appropriate confidence-instilling intermediaries and with appropriate guarantee mechanism attached to raise resources for development.

A Credible Commodity-Backed Securities Scheme Needs International Support

The international community needs to give a mandate to international institutions to work with African countries to develop these financing instruments. This is crucial to ensure that the people of Africa benefit sustainably from this unprecedented growth potential and that all the gains achieved over the last two decades in terms stability and growth are protected. Questions around pricing, reserve management, size of the securitized portion as a share of total assets, operational risk and governance framework will need to be clarified. International financial institutions (IFIs) are uniquely placed to perform this task. While China needs resources to build its cities today, Africa needs transformational projects to generate sustainable growth over the medium term. For this growth to happen, a dynamic resource model must complement the existing China-Africa trade model. The international community needs to innovate the financing model for development so as to reduce reliance on transfers from developed countries that now face enormous fiscal pressures. The combination of low interest rates in the West, low debt levels in Africa and the availability of a list of transformational projects, the growing mineral resource base of countries presents a unique opportunity.

The commodity-backed securities proposed structure should enable a “virtuous credit cycle,” reducing both current IFI credit exposure—through secured interest in resource ownership and associated revenues—and future IFI credit exposure—through improvement in recipient nation credit-worthiness thanks to economic development spurred by investments in sound infrastructure projects.

The IFI’s intermediary position and credit backing will, in particular, enable resource-rich countries to have access to markets and allow capital sources not otherwise open to these countries participate since the country risk will be diminished either through guarantees provided by the IFIs or interest buy downs.

The structure will enable international financial institutions to directly link access to capital with commercial capital market infrastructure—which today remains a challenge. The IFI’s intermediary position and credit backing will, in particular, enable resource-rich countries to have access to markets and allow capital sources not otherwise open to these countries participate since the country risk will be diminished either through guarantees provided by the IFIs or interest buy downs.

In the case of the Democratic Republic of the Congo (DRC), for example, where the total sum of its mineral resources on 15 percent of its territory is estimated at over $3.4 trillion the issuance of commodity-backed securities valued at $10 billion or less than 3.5 percent of the DRC's total future value of its commodities could serve as the catalyst needed to help the DRC break away from the cycle of conflict and fragility. For Gabon, the possibility of having $2 billion to invest in much-needed infrastructure over the next five to seven years (the length of normal infrastructure projects) will not only begin to provide jobs for the youth of Gabon but will transform the narrative of this small resource-rich country.

Furthermore, if the funds raised through commodity securitizations are invested wisely in infrastructure development, growth can be accelerated and diversification in the economy can take place. For example, if the investment proceeds were used to finalize construction of the Inga Dam, the country could begin the diversification process. The experience of Laos and the transformational Nam Theun 2 Dam project provide an example of the impact of such projects on an economy. With investments in hydro power undertaken eight years ago, Laos today has been able to go from being a billion dollar economy to a $9 billion economy in less than 10 years and has substantially diversified its economy.

With its young population Africa needs to urgently secure growth today to provide savings for the future. Africa's youth needs a future built, its urban centers equipped and its lights turned on today. With a clear program to manage its commodities to deliver growth and prosperity today, additional resources could transform Africa from the continent of the bottom billion to the continent with the top trillion. This goal is within reach.

Sources

European Gold Centre, Mining in Africa, Editor: Henk J. Krasenberg, Issue March 2010.

Serven, Luis Fiscal Rules, Public Investment, and Growth, 2007, World Bank Policy Research Working Paper No. 4382.

Collier, Paul. The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, 2008, Oxford Press.

Authors

Vera Songwe

Inequality and Inclusive Growth in Africa: A Conversation with South African Finance Minister Pravin Gordhan

Wed, 17 Apr 2013 16:00:00 -0400

Event Information

April 17, 2013
4:00 PM - 5:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

livefrombrookings on livestream.com. Broadcast Live Free

Africa is the world’s second-fastest growing region, and South Africa is the continent’s economic leader. The country recently hosted the BRICS Summit and has been working hard to promote growth and encourage investment. Yet inequality has been a persistent challenge. As the economies of South Africa and the African continent continue to expand, governments in the region must ensure that such growth follows a sustainable model that creates wage-paying jobs and lifts citizens out of poverty.

On April 17, the Africa Growth Initiative at Brookings hosted a conversation with the Honorable Pravin Gordhan, minister of finance for the Republic of South Africa, on inequality and inclusive growth in South Africa and the African continent. Minister Gordhan’s remarks were followed by a panel discussion with Brookings Senior Fellow Homi Kharas, deputy director of Global Economy and Development. Brookings Vice President Kemal Derviş, director of Global Economy and Development, moderated the discussion.

You can join the conversation on Twitter using #Africagrowth.

Youth Policy and the Future of African Development

Kwabena Gyimah-Brempong and Mwangi S. Kimenyi — Mon, 15 Apr 2013 13:44:00 -0400

INTRODUCTION

One of the greatest challenges facing governments and policymakers in Africa today is how to provide opportunities for the continent’s more than 200 million youth so that they can have decent lives and contribute to the economic development of their countries. According to the United Nations (2012), Africa’s 2011 population was estimated at 1.05 billion and is expected to double by 2050. Africa is the youngest continent in the world: About 70 percent of its population is 30 years of age or younger. In 2011, youth, who are defined here as those between 15 and 24 years of age, constituted 21 percent of the more than 1 billion people in Africa, whereas another 42 percent was less than 15 years old. Slightly more than half of the African youth population is female, and there are more rural dwellers than urban dwellers. With such a large proportion under 15 years of age, Africa’s youth population is expected to grow in the years to come while the youth population in other parts of the world shrinks.

Undoubtedly, the challenges for youth that are central to Africa’s economic development are numerous and varied—they include employment, health and political participation.

Undoubtedly, the challenges for youth that are central to Africa’s economic development are numerous and varied—they include employment, health and political participation. These issues differ among groups within countries (by gender, education level, ethnicity and health status), and across countries and regions. Conversely, the size, energy, enthusiasm, innovation and dynamism of youth are assets that can be harnessed for Africa’s development with appropriate policies that deal adequately with the issues facing them.

The potentially important role of youth in Africa’s development cannot be overemphasized. Youth could be a source of labor inputs as well as human capital in production, which would improve total factor productivity in a region of the world where capital formation is limited. When employed, youth could be a reliable source of demand for the economy through their consumption activities. In addition, the youth of Africa could be critical for the development of a new class of entrepreneurs that African countries need to prosper. Furthermore, Africa has an opportunity to harness a “demographic dividend”: With the projection that most countries in Africa will have more working-age adults per child in 2030 than in 2006, there will be a large workforce supporting fewer children and the elderly. This trend would result in a lower dependency burden, freeing up resources for development; see, for example, Ashford (2007).

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Kwabena Gyimah-Brempong
Mwangi S. Kimenyi

Brookings: Topics - Sub-Saharan Africa

The African Union at 50: The Path Forward

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A Theoretical Framework for Kenya's Central Bank Macroeconometric Model

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The African Union Can Do More to Support Regional Integration

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Mukhisa Kituyi to Head the United Nations Conference on Trade and Development (UNCTAD)

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Mapping the African Growth Landscape

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The Impact of School Feeding Programs in Senegal

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The Kampala Convention: Entry Into Force

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The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

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Six Major Decision Points for Uhuru Administration

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World Economic Forum on Africa: Delivering Africa’s Promise

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Africa Answers: Five Questions for Lawrence Bategeka about Uganda’s New Oil Law

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Pentagon Paying China — Yes, China — To Carry Data

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Livelihoods, Gender and Displacement in Côte d’Ivoire

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Creating Jobs Where Institutions Matter: Addressing South Africa’s Unemployment Problem

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Is Africa Rising or Not? A Discussion of Economic Opportunities and Development Challenges in Africa

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Africa Answers: Five Questions about Sustainable Inclusive Growth in South Africa

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From Bottom Billion to Top Trillion: Using Commodity-Backed Securities to Support the Future of Africa’s Resource Economies

How Does Africa Sustain Growth?

Commodity-Backed Securities Should be Considered Now

A Credible Commodity-Backed Securities Scheme Needs International Support

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Inequality and Inclusive Growth in Africa: A Conversation with South African Finance Minister Pravin Gordhan

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Youth Policy and the Future of African Development

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