The Great Debate UK

A global bright spot: Sub-Saharan Africa

By Kathleen Brooks. The opinions expressed are her own.

For the last three years talk about the global economy has been decidedly negative. Firstly there was the sub-prime housing crisis in the U.S., then the sovereign debt crisis, now we wonder whether the euro will survive and whether China will suffer a “hard” economic landing.

But amidst all of this doom and gloom, there seems to be a bright spot: Sub-Saharan Africa. For the bulk of the last thirty years the focus has been on famine, civil war or piracy, which has left a decidedly negative impression of the continent. However, in recent weeks there has been a growing number of optimistic reports about Africa, with some even thinking it could continue to grow while the rest of the world stagnates.

So why all the positivity? The media might be behind the curve on this one since Sub-Saharan growth has outperformed the global average for most of the past decade, according to data from the International Monetary Fund (IMF). What is even more astonishing is that it has managed to sustain its growth rates even during periods of crisis. Last year growth averaged more than 5 percent even  though the sovereign debt crisis ravaged Europe and exports stayed high. Now that global food and energy inflation is starting to level, the continent is in a solid position.

The IMF predicts that Sub-Saharan Africa will grow at a faster pace than Brazil – one of the BRIC economies – between 2010 and 2015. So how has the continent managed to divert the narrative from famine and war to growth and prosperity?

There are a few reasons for this: firstly, demographics, secondly, natural resources and thirdly, its lack of exposure to developed world banking sectors. Looking at demographics first, a growing middle class is starting to emerge and now makes up approximately one third of the population of Sub-Saharan Africa. This class of people want to spend money and have helped to lift domestic demand as a share of GDP across the region. Added to this, 70 percent of the middle class is under the age of 40 so have many “spending” years ahead of them.

The Middle Class has been helped by some expedient political decisions in the region, debt relief and peace returning to parts of the continent. This helped to nurture a private sector that has also benefitted from intra-regional trade. A growing middle class brings with it societal benefits: rising education standards and aspirations, which may eventually filter down to poorer parts of society. There is no denying that poverty is a reality in Africa and by 2060 one third of the population is expected to be still living on $1.25 per day, but at the same time more and more people are expected to lift themselves out of poverty.

from Africa News blog:

100 years and going strong; But has the ANC-led government done enough for its people?

By Isaac Esipisu

Although the role of political parties in Africa has changed dramatically since the sweeping reintroduction of multi-party politics in the early 1990s, Africa’s political parties remain deficient in many ways, particularly their organizational capacity, programmatic profiles and inner-party democracy.

The third wave of democratization that hit the shores of Africa 20 years ago has undoubtedly produced mixed results as regards to the democratic quality of the over 48 countries south of the Sahara. However, one finding can hardly be denied: the role of political parties has evidently changed dramatically.

Notwithstanding few exceptions such as Eritrea , Swaziland and Somalia , in almost all sub-Saharan countries, governments legally allow multi-party politics. This is in stark contrast to the single-party regimes and military oligarchies that prevailed before 1990.

After years of marginalization during autocratic rule, many African political parties have regained their key role in democratic politics by mediating between politics and society. Multi-partyism paved the way for genuine parliamentary opposition and the strengthening of parliaments in decision-making. However, several shortcomings still remain: many African political parties suffer from low organizational capacity and a lack of internal democracy.

Dominated by individual leaders, often times lifelong chairpersons and “Big Men”, youth and women remain marginalized within party structures.

from The Great Debate:

What we’ve learned from 25 years of famine

By Mark Malloch-Brown The opinions expressed are his own.

Twenty five years ago, in the aftermath of a devastating famine in Ethiopia, remembered for better and worse for Bob Geldof's Bandaid concerts, I wrote a book called "Famine: A Man-Made Disaster?" The question mark said it all. I ghostwrote the book for a group of African and other leaders who were more tentative than I was in declaring what had happened was largely the fault of African governments. So the great men added a question mark.

Yet while it was more convenient--not least for fundraising and handling a nasty regime in Ethiopia--to blame it on God and the weather, that famine was caused in large part by bad governance. A centralized regime in distant Addis Ababa, interested in its own survival, had little time for the development of far off rural areas where non-Amharic minorities were living. Its military background and Marxist pretensions also meant it had no interest in developing local food markets and viable peasant agriculture.

So the first big change is what has not happened. Most of Ethiopia and for that matter Kenya have escaped the famine not just because they were beyond the strict epicenter of the drought itself but because a long investment in rural food security in Ethiopia and a buoyant market economy in Kenya has enabled both to ride out sharply higher food prices.

It is no coincidence that the famine has taken hold where governance remains weakest in the region: northern Kenya where pastoralists are marginalized and have little voice in the capital, Nairobi; the Ogaden region, a similarly politically marginal area of Ethiopia, is struggling but in Tigre, the centre of the famine 25 years ago, a central government back in Addis led by Tigreans has built robust economic and environmental defenses as it has in much of the country. By contrast next door in Eritrea an unpleasant reclusive leadership may be hiding the extent of its failure to contain the famine.

The best example of why government matters is in Somalia, where there is no central government to speak of and the famine is principally in the area controlled by the ruthless Al-Shabab Islamic militia. By contrast semi-independent, better governed Somaliland and Puntland have weathered the crisis much more effectively. Following the logic that safety from famine follows good leadership and management it may be time for its neighbors and the world to hear Somaliland's call for international recognition and independence. Its parent is a failed state that might do better broken up.

Whether it is terraced farming in Ethiopia, which conserves dusty highland soils that previously were blown or rained off the hill sides, or the extraordinary success of Bangladesh in recent years of cutting lives lost from tens of thousands to almost zero in the annual monsoons that flood down it's funnel-shaped center, the examples of successful cheap disaster mitigation and containment are remarkable in poor countries.

from Africa News blog:

Is Africa drought a chance to enact new UK policy?

New ways of managing aid are being debated in Britain as global concerns mount over a hunger crisis devastating the drought-affected Horn of Africa.

Randolph Kent, director of the Humanitarian Futures Programme at King's College in London, says the crisis provides a perfect opportunity for the British government to test its recent promise to reform how it responds to humanitarian emergencies.

The severe drought, caused by the driest weather since 1995 in East Africa, has affected an estimated 10 million people and is expected to continue to worsen into early 2012, according to the United Nations Office for the Co-ordination of Humanitarian Affairs (OCHA).

While Kent acknowledges the importance of a $145 million (90.2 million pound) injection of humanitarian aid from the British government, he says the money will not help prevent the next Horn of Africa drought and that the government needs to become more "anticipatory".

"This disaster has to teach us that the ways we've approached such crises in the past is not good enough," Kent said in a statement. "If we don't want to be consistently on a back foot when disasters happen, then we need evidence of strategic planning taking place at an international and regional level now."

The British government's Humanitarian Emergency Response Review (HERR), released in June, recognises that as a result of the increase in the intensity and frequency of disasters - a trend expected to grow with climate change and population growth - preparedness must be a key goal.

Superstar economics: It’s all showbiz now

By Laurence Copeland. The opinions expressed are his own.

It seems barely a week goes by without another shock report about the ever-widening gap between those at the top of the earnings distribution and the rest of us. The facts are by now well-established. Throughout the Western world, but most noticeably in Britain and America, the earnings of the top one or two percent are accelerating into the stratosphere, leaving the middle class a long way behind, and the working class completely out of sight. How can one explain this global phenomenon?

Academic economics seems to be taking a surprisingly long time to reach a definitive answer, but I suspect there will turn out to be two long term trends at work here.

First, globalisation has doubled or tripled the supply of unskilled and semi-skilled labour. As long as China remained locked in Maoist isolation and the Indian economy had to carry the full burden of the Licence Raj, their respective workforces were shut off from the global labour market. The fact that products could theoretically be manufactured far cheaper in those countries was unimportant, because in practice Western firms could never take advantage of their rock-bottom labour costs.

Now that they have opened up and it is possible to outsource manufacturing to China and the paperwork to India, there is less and less left for our workers and middle-managers to do – unless, of course, they are willing to work for more competitive (i.e. lower) wages.

Moreover, the second phase of this transition is well underway, as the emerging economies start to exploit their vast pools of underemployed (and often excellent) graduates to move up the value chain, where they increasingly compete with our engineers, programmers, and even lawyers and doctors.

All over Europe and North America, people are asking: where will it all end?

Aid: In favour of zero-tolerance

By Laurance Copeland

After one year, the progress report on the Coalition reads “Moving in the right direction, but with a lot more to do”.

Nonetheless, it is a prisoner of its commitment at the outset to leave two departmental budgets untouched: the NHS and international aid. It is not simply the amounts of money involved (colossal in the case of the NHS, relatively small for aid). It is also the signal it sends that there is such a status as sacrosanct, which immediately begs the question from policemen, firemen, teachers, the legal system, the armed forces: why isn’t our budget sacrosanct too?

This week we learned that Dr Liam Fox is opposed to fixing in law Britain’s aid budget at 0.7 % of GDP.  I can understand his disquiet, but I would feel far more sympathy if he favoured instead enshrining in law a more sensible level for international aid – say, 0.0%, or thereabouts. It is not really a question of what we can afford – personally, I would be quite happy to see 0.7% of GDP set aside in a fund to support international disaster relief (think of the 2005 Asian tsunami or the Haiti earthquake) – it is simply that ongoing international aid is at best a waste, at worst it actually damages the poor people it is supposed to help.

The justification for aid is, presumably, that it is intended to alleviate the suffering of those at the bottom of the income distribution in countries which are themselves too poor to be able to help.  However, when you actually look at the list of recipients of aid from the UK, you find that it includes a number of countries which ought to be capable of providing a tolerable standard of living for their own population without outside assistance e.g. Angola, with its vast natural resources (oil, gas, diamonds etc) and, unbelievably, Russia, which is even better endowed both with raw materials and with billionaires.

It was reported a few weeks ago that HMG was considering crossing countries like these off its gift list – not before time, you may think – but that leaves on the list a number of other recipients whose status might well be questioned, notably India.

On the one hand, even after a decade or so of rapid growth, India still probably holds the greatest concentration of misery on the planet. Yet at the same time India feels able to afford not only one of the world’s largest and best-equipped armed forces, with a well-developed nuclear capability and delivery systems to match, but also maintains a gift list of its own, including among its clients Myanmar, Afghanistan, Bhutan and a number of African countries.

from Newsmaker:

An African spring

By Cari Guittard The opinions expressed are her own.

A NEW NARRATIVE FOR AFRICA EMERGING

Africa’s abundance -- from diamonds and coffee to cacao, rare minerals, natural gas and oil -- is well known, though laced with images of corruption, genocide, and famine. Fifty-four nations comprise the African continent and yet how many of us can name more than a dozen of those countries and begin to differentiate their strengths commercially?

Many around the world see Africa as a monolith and through the prism of media and film which paint a decidedly negative picture. Google images of Rwanda show stark photos of starving orphaned children, mass slaughter and extreme deprivation. Which is why at a recent meeting with senior staff at the U.S. African Development Foundation (USADF) I was shocked to hear them extol the virtues of Rwanda. Rwanda was being held up as an example of an African nation leading the way in encouraging entrepreneurship and forging unique global partnerships. They even encouraged me to think of Rwanda as a travel and tourism destination. The “renaissance” in Rwanda is being seen across the continent and clearly a new narrative for Africa is beginning to emerge.

It is noteworthy that this month's Harvard Business Review profiles Africa as a major growth opportunity, citing a McKinsey study from last year with the following:

• Over the past decade, Africa’s real GDP grew by an average of 4.7% a year -- twice the pace of its growth in the 1980s and 1990s.
• The prospects for consumer-facing companies are bright. Africans spent $860 billion on goods and services in 2008.
• The greatest opportunities are in retailing, telecommunications, banking, infrastructure-related industries, resource-related businesses, and all along the agricultural value chain.
• According to UN data, Africa offers a higher return on investment than any other emerging market.

LISTEN TO ENTREPRENEURS. THEY WILL LEAD THE WAY

China – accidental imperialist

-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-

China is an emerging imperial power. We can be sure of that fact, even though the Chinese Government may well have been absolutely genuine in repeating that it feels no urge for empire-building or for intervention in the affairs of other countries. It is simply the case that, if trade follows the flag, the opposite is also often true.

Imagine the following highly-plausible scenario: political unrest in one of the half-dozen African countries (Nigeria, Sudan, Zambia, Angola……) where China has a substantial presence, with large investments in local mineral resources operated by tens of thousands of expatriate Chinese. A local strongman deflects the popular dissatisfaction on to the Chinese, who by all accounts have managed to make themselves at least as detested as were the European colonialists of relatively recent memory. Before you can say Idi Amin, the mob sets off looting, burning and killing, and maybe taking hostages too. Whatever is left is expropriated in the name of anti-imperialism, socialism, national self-determination or some other slogan to conceal the greed of the local power elite.

How does Beijing react? The answer is surely with a policy that, in the heyday of the British Empire, used to be called: Send a Gunboat – send some kind of expeditionary force to rescue Chinese nationals and salvage whatever they can of their huge investments.

From there, it is just a short step to pre-emptive action. Why wait for the worst to happen? China will feel the need to use its vast economic power behind the scenes in the domestic politics of the countries it is investing in, just as America, France and Britain have been doing in their respective spheres of influence for decades. The historical parallels with Britain’s accidental empire are obvious. Nobody in England (as it was then called – Britain had not yet been invented) ever announced the decision to build a global empire; it just happened. In India, for example, for more than two centuries British commercial and political interests were exclusively represented by the famous East India Company, a private corporation with near-governmental status, until eventually, when the locals rebelled against their colonial masters in the 1857 Mutiny, the government in London decided they had no choice but to take control, and India duly became a colony.

The strange thing is that, although China has been one of the richest, most advanced countries in the world for all but a comparatively brief period of three or four centuries in the last four or five thousand years, it has on the whole tended to turn its back on the rest of the world, convinced that it had very little to gain by attempting to dominate it, exploit it or “improve” it. So, while the Han ruled an internal “local” empire on the frontiers of the Middle Kingdom, they felt no urge to return the occasional visits from European merchant-adventurers like Marco Polo, nor to try to spread their own religious beliefs to the furthest ends of the earth by evangelism or by coercion at the point of a sword. Their effect on the countries around them – Korea, Japan, Vietnam – was largely restricted to the cultural and linguistic domain.

The change in stance is inevitable because, like the British Empire in the 19th century, China’s new empire is based on a global trade model that involves importing raw materials from and exporting manufactures to the rest of the world. What is urgently needed now is some agreement between China and the other trading (and investing) blocs, which basically means the U.S. and the EU, on the rules of the international game. Otherwise, there is a danger of friction, especially if local strongmen decide to play off against each other the world powers competing for resources in the Third World. Of course, there is the risk that a deal will be seen in the rest of Asia, Africa and Latin America as a case of China and the West carving up global resources – but that outcome would be far less dangerous than a great power clash, which seems otherwise to be simply a matter of time.

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.

from Chrystia Freeland:

Rise of the rest

Get ready for the next wave of globalization. The emergence of the emerging markets is old news, of course: after all, Tom Friedman discovered that the world was flat back in 2005. But even as much of the developed world is struggling with weak consumer demand and stubbornly high levels of unemployment, the emerging market countries are writing a new chapter in the story of the global economy.

We are accustomed to thinking of our economic relationship with the countries Fareed Zakaria describes as “the rest” as a two-way exchange between west and east or north and south: western companies setting up call centers in India or manufacturing their goods in China, for instance; and, more recently, savings-rich emerging market economies, especially China, investing in US treasuries, or Russian oligarchs buying London mansions.

That was Globalisation 1.0. In the next stage, some of the biggest deals and some of the most important capital flows will be between emerging markets, with no need to stop-over at Heathrow or JFK. Forget the last decade’s race-to-the-bottom rivalry between Wall Street and the City of London to be the world’s financial capital; the new motto of the moneymen, as one Manhattan banker put it to me this week, is “Mumbai, Dubai, Shanghai or goodbye.”

One place you can watch Globalisation 2.0 gathering pace is on the 49th floor of the ‘C’ tower in the high-tech high-rise complex the locals call Moskva City, on the banks of the Moskva river, half a mile downstream from Russia's White House, where Prime Minister Vladimir Putin is currently installed. The fancy modern furniture (the “Ziricote veneer,” a sign informs visitors, is “sourced in Chile”) and contemporary art are standard New York hedge fund decor. But Stephen Jennings, the 50 year-old New Zealander who receives visitors here, is betting on a world that by-passes the west altogether.

Jennings is a founder and CEO of the Renaissance Group, a Moscow-based financial company with ambitions to be the premier investment bank for intra-emerging market capital flows. As Jennings put it, he wants Renaissance “to provide the plumbing”.

Last year, Jennings went home to Wellington to deliver the annual Trotter lecture, a stage he used to lay out his vision of the rise of indigenous emerging market players. “Multinationals’ advantages in terms of know-how and capital have been neutralized by their inability or reluctance to grow explosively in complex, foreign environments,” he argued. “In many emerging markets and in an increasing number of industries, the market leaders have local roots. The largest metals group in the world is Indian. The largest aluminum group in the world is Russian ... The fastest-growing and largest banks in China, Russia and Nigeria are all domestic.”

Jennings knows that emerging markets are “highly idiosyncratic.” But, he told me, some of the savviest emerging market champions seem to be discovering they have more in common with each other than with their erstwhile tutors in the west: “they have analogous business models and states of development ... they are all culturally attuned to these fast-growing markets.”