Africa News blog

from MacroScope:

Building BRICs in Africa

Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries -- Brazil, Russia, India and China -- on Africa.

First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:

-- By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.

-- BRICs share of Africa's total trade will increase from one-fifth today to one-third in the next five years.

-- BRICS foreign direct investment stock in Africa will swell to more than $150 billion from around $60 billion today.

Standard Bank bases these assertions partly on estimates for BRICs growth over the next five years -- eg, domestic output, global output and a doubling of BRICs trade with the world in general. But it also sees Africa growing rapidly -- for example, a per capita real annual growth rate of 5.7 percent between now and 2015, and a doubling of private consumption in Africa's 10 largest economies. And it adds:

Crucially, a host of global-minded corporates is emerging from the BRICs. In 2010 231 (11.5 percent of the total) companies listed in the Forbes Global 2000 originated in the BRICs, up from only 83 companies (4 percent) in 2005. Recent trends are a harbinger of deeper potential.

West must change approach to Africa

Tom Cargill, Assistant Head of the Africa Programme at Chatham House, writes on the West’s relationship with Africa:

French President Nicholas Sarkozy put it best this week, when he spoke of the increasing important of Africa in Global Affairs: “Africa’s formidable demographics and its considerable resources make it the main reservoir for world economic growth in the decades to come.”

This is indeed the principal finding of our new Chatham House Report ‘Our Common Strategic Interests: Africa’s role in the post G8 World’. Yet so far there is very little evidence that Western policy makers, publics, or most importantly, businesses, are waking up to the opportunities that are slowly draining away from them with each passing day.

For the past ten years, fundamental change has been taking place across large parts of Africa. Growth rates and stability have increased. Political, regulatory and security reform have deepened. Increasing investment from China, but also Brazil, India, Turkey, South Korea, Argentina and other ambitious emerging powers has acted for the most part as an accelerant.

Even the global financial crisis has in some ways hastened this process, for while in the short and medium term it had a devastating impact on millions across Africa, it has also revealed the true ebb of power from East to West, and encouraged the new economic actors of the G20 to chase access to the 40 percent of the world’s mineral resources, and 1 billion consumers gathered in Africa. Almost as important is the 25 percent of UN General Assembly votes that are represented by the continent’s 53 countries.

Meanwhile, many Western countries seem trapped in a humanitarian conception of Africa.

Popular media coverage and policy judgement is overwhelmed with a perception that Africa is simply a problem continent with little strategic value, except as a space where largess is shown and good things done to make up in some small way for the messy reality of international diplomacy.

Will EAC’s common market deal work?

For telecoms-tycoon-turned-philanthropist Mo Ibrahim, it’s one step forward, two steps back. For Benno Ndullu, governor of the central Bank of Tanzania, the whole thing is bound to stall unless problems are ironed out first.

For many Tanzanians, it’s a threat to their jobs, language and prospects.

But for the leaders of the five-member East African Community (EAC), signing the common market protocol on Friday represents the future fortunes of Burundi, Kenya, Rwanda, Tanzania and Uganda combined.

Signing the document — the culmination of a relatively speedy 18 months of negotiation — will mean goods, services and the community’s 126 million people can move freely across their borders, in theory at least.

Together, the five countries muster $60 billion in gross domestic product combined, and believe they can prosper better as one unit than apart.

Already they have a customs union, but by 2012 they foresee sharing a single currency and finally political federation.

Has Clinton visit helped offset China’s clout in Africa?

U.S Secretary of State Hillary Clinton’s 10 day trip to Africa ends this week with many commentators viewing it at least partly as being aimed at offsetting China’s growing economic clout on the African continent. In public, Clinton has delivered Washington’s traditional messages on the importance of fair elections and of fighting corruption and human rights abuses.

But the fact that top oil producers Angola and Nigeria are both on the tour has made clear the importance of the visit from the perspective of ensuring access to resources – an area of huge importance to China too.

China’s trade in Africa hit $107 billion in 2008 and there are now 750,000 Chinese workers living and working in Africa. Sources in both Washington, D.C. and Africa confirmed that Clinton’s subtle diplomatic strategy is to offer African leaders infrastructure assistance in exchange for oil resources and increased energy investments on the African continent.

China, meanwhile, may be marshalling reserves to help kick start African economies and fuel demand as well as to secure access to its resources.

In the past, Beijing has always argued that it is still a very poor country on per capita basis so cannot afford foreign aid. China’s foreign aid was only 0.04 percent of its gross domestic product, only a fraction of the U.S. percentage of 0.4 percent and Europe’s 0.7 percent.

But the financial crisis has changed this. While the downturn has crimped U.S. and Europeans companies’ ability to expand overseas, Chinese firms, awash with cash, are keen to look for new growth opportunities in new markets.

Has Hillary’s visit helped to offset the Chinese push? What value can her words carry against Beijing’s ready cash? Should China be concerned that Washington  may be catching up with its own push into Africa?

Can U.S. trade help Africa?

Sudath Perera has every reason to be content. He started up his textiles factory outside the Kenyan capital Nairobi nine years ago; today, he employs 1500 workers and turns over between 18 and 20 million U.S. dollars a year.

“We are contributing to the local economy by creating employment,” he says. “And indirectly there are a lot of local suppliers also relying on us.”

Perera’s factory is one of thousands of businesses on the continent that are taking advantage of a U.S. trade programme under which certain goods from around 40 sub-Saharan African countries can be imported to the States duty-free.

It’s known as AGOA – the African Growth and Opportunity Act – and was one of the main reasons for U.S. Secretary of State Hillary Clinton’s visit to the continent.

“The ingredients are all here for an extraordinary explosion of growth, prosperity and progress,” said Clinton at the AGOA forum in Nairobi last week. “I know how important it is to translate legislation like AGOA into daily changes that people can look to.”

Many on the continent say they’re already feeling those changes. Textiles factory worker Christine Mwende didn’t have a job before Perera employed her; and though the 120 dollar-a-month salary she makes is low by Western standards, she says it’s made all the difference.

“This job has really helped me,” she told Reuters Africa Journal correspondent Vivianne Mukakizima. “When I started working here, my child had not started school – but he is now in class 4.”

Africa back to the old ways?

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

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

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

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

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

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

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

Time to stop aid for Africa? An argument against

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

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

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

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

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

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

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

Hu reassures Africa?

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

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

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

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

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

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

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

Time to stop aid for Africa?

Far from being all bad news for Africa, the global financial crisis is a chance to break a dependence on development aid that has kept it in poverty, argues Zambian economist Dambisa Moyo, who has just published a new book “Dead Aid”.

Moyo’s book, her first, comes out at a time when Western campaigners, financial institutions and some African governments have been warning of the danger posed to Africa by the crisis and calling for more money from developed countries as a result. The former World Bank and Goldman Sachs economist spoke to Reuters in London.

“I’m not saying its going to be easy, I’m just saying that there is a real opportunity for policymakers to focus on coming up with more innovative ways of financing economic development. In a way the crisis actually provides the African governments with the situation where they cannot rely on aid budgets coming through from the West.”

Moyo believes more than $1 trillion in development aid over the past 50 years has only entrenched Africa’s poverty, distorted economies and fuelled bureaucracy and corruption. She sees alternatives such as encouraging trade – particularly with emerging markets – encouraging foreign direct investment, microfinancing for enterprise and seeking funds from capital markets.

Moyo is not discouraged by the fact that all those options appear more difficult in the current environment.

“It just means the onus is on African governments to come up with a more compelling story as to why African governments are overseeing real asset investment not derivative products we don’t really understand.”

“If you focus on traditional markets like Europe and the United States, you come to the conclusion that markets are really damaged and it’s very hard to raise money in those markets, but if you start to look towards China for example which has $4 trillion of reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market for example.”

Will Africa’s mega trade bloc take off?

Three African trading blocs comprising some 527 million people and with an estimated gross domestic product of $624 billion, have agreed to move towards a free trade area. It would span 26 countries from Egypt to South Africa, and would go a long way towards streamlining some of the continent’s numerous trading blocs. Africa is home to some 30 regional trade arrangements, and on average each nation belongs to about four groups, according to international financial institutions. This has led to conflicting and overlapping agreements.

So in a move to ease some of these issues, heads of state who chair the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and the Southern African Development Community (SADC),  met in the Ugandan capital to draw up a pact on integration, and eventually hoping to have a unified customs union. Ugandan President Yoweri Museveni said at the meeting’s opening that: “The greatest enemy of Africa, the greatest source of weakness has been disunity and a low level of political and economic integration.” The meeting’s final communiqué said a timeframe for integration would be considered in one year. Rwandan President Paul Kagame cautioned delegates that African nations must make sure to enforce the protocols and treaties that they’ve adopted. Heads of state at the meeting stressed the need to create economies of scale, bigger markets equal more opportunities to grow, they said.

But many of the existing blocs have already run into trouble. The EAC’s integration, for example, has had some hiccups because some member countries felt their economies would be dominated by neighbours.

So, should Africa think bigger and bigger or try to work on existing institutions? Do you think the creation of a free trade zone spanning COMESA, SADC and the EAC will take off, or will it just remain on the drawing board? What do you see as the major challenges in implementing this agreement?