Opinion

The Great Debate

An agenda to boost Africa’s economy

A lot can happen in a year. This time last year, U.S. businesses and NGOs bemoaned the Obama administration’s perceived indifference to Africa. Now, they’re trying to find out how to catch the wave of interest. Major new initiatives, including Power Africa and Trade Africa, unveiled during President Obama’s first true trip to Africa this summer, as well as a reinvigorated push to renew the African Growth and Opportunity Act fully two years before it’s due to expire, have given U.S.-Africa watchers a lot to consider. But what — and when — is enough for U.S. policy in Africa? What more can be done in the year ahead? How do things really shake out for investors, civil society and Africans? Here are three additional areas the Administration should consider as it deepens its commitment to the continent:

1. Invest in Africa’s equity and commodity markets. ­Despite all the interest in Africa’s economic growth and investment potential, it’s still very hard to invest on the continent. Of its less than 30 stock markets, only a few exchanges really offer modern processes and back-end technology to facilitate daily transactions. As Todd Moss from the Center for Global Development notes in a recent paper, some African exchanges trade less in a whole year than New York does before “their first coffee break.” As a result, for institutional investors who need to take large positions or who have fiduciary requirements for daily liquidity, Africa remains almost entirely off-limits. In an era of algorithmic and high-speed trading, Africa’s antique market infrastructure is a major barrier to entry for much needed foreign direct investment.

Innovation is perhaps most evident in commodity exchanges. A number of projects in East Africa are taking off — including the East Africa Exchange (EAX), a private initiative founded by Heirs Holdings, Berggruen Holdings and 50 Ventures, which was launched in January this year. The eponymous Eleni LLC, a consultancy focused on developing private exchanges, builds off the rapid success of Ethiopia’s commodity exchange and the work of Eleni Gabre-Madhin, its founder. Both efforts build the critical architecture necessary for productivity growth in economies that still remain predominantly agrarian.

2. Disrupt Dodd-Frank. Two obscure sections of the Dodd-Frank Act, 1502 and 1504, concern conflict minerals and transparency in Africa. Despite a lot of fanfare in their passing, Section 1502 has been pilloried by almost everyone since: NGOs, academics and the private sector. DF-1502 requires nearly all of the 5,994 publicly listed companies in the U.S. to scrutinize their supply chain and ensure they don’t contribute to the conflict in the Democratic Republic of Congo. According to estimates in a Tulane University study, the cost of implementing the DF-1502 is close to $8 billion. What’s more, no clear guidance exists for how to comply, so companies have mostly taken scattered shots in the dark hoping the Securities and Exchange Commission, the end regulator, takes notice. Section 1504, for its part, was remanded by a U.S. District judge in July and sent back to the SEC for further review. Even if well-meaning, the two sections impose unique challenges for investors on the continent, and as others have argued, risk exacerbating the problems they sought to solve.

3.  Africa’s rising savers. The biggest fallacy in Africa’s growth is that its future depends on the rising African consumer. It does, but that’s a subplot and the numbers estimating its size range dramatically. And even if Africa’s consumers are rising, if its markets remain fragmented its overall affect on foreign investment will be limited (something Trade Africa is hoping to address). More important is the role of Africa’s rising savers. The transformation of Africa’s institutional investment landscape — public and private pension funds — over the next 10 years will be the most important development for its future growth. American investors should be looking at the institutions that manage these funds and either look to partner with, or raise from them, since most of the same wells in the U.S. will be dry. Sub-Saharan Africa’s six biggest pension funds are growing at rapid rates; assets in Tanzania, Uganda and Kenya’s pension funds are all growing at over 15 percent year-on-year. As African economies’ dependency ratios even out and asset allocation regulations ease, vast opportunities will open up in domestic private investment markets.

Fed chair fight raises crucial questions for Obama

The media circus over who will be the next chairman of the Federal Reserve is, on the one hand, an unwelcome spectacle at a time when uncertainty over the outlook for U.S. output and jobs growth is high. While previous leadership transitions have brought forth speculation about candidates, the current “contest” is odd. President Obama, after ungraciously commenting on Chairman Bernanke’s reappointment prospects, wisely stepped back for a period of reflection and decision about “what” he wants as well as “who” he wants.

On the other hand, this period also offers an opportunity for the White House to turn questions for the next chairman to consistent questions about the administration’s own economic policies. Four areas provide an immediate point for comparison.

The first is about the Fed’s role in supporting economic growth. A core element of the desire for Fed policy to enhance near-term growth and employment prospects is the Fed’s reduction in longer-term interest rates via its large-scale asset purchases (“quantitative easing”). The link here is from lower long rates to higher investment spending by households and businesses, with gains in GDP bolstering employment. Chairman Bernanke has justified continued quantitative easing to augment the economy’s growth momentum. A problem: the pace of growth actually decreased from 2010 to 2011 to 2012, suggesting a less than robust correlation.

Building America’s secret surveillance state

ILLUSTRATION: Matt Mahurin

“God we trust,” goes an old National Security Agency joke.  “All others we monitor.

Given the revelations last week about the NSA’s domestic spying activities, the saying seems more prophecy than humor.

First, the Guardian reported details on a domestic telephone dragnet in which Verizon was forced to give the NSA details about all domestic, and even local, telephone calls. Then the Guardian and the Washington Post revealed another massive NSA surveillance program, called Prism, that required the country’s major Internet companies to secretly pass along data including email, photos, videos, chat services, file transfers, stored data, log-ins and video conferencing.

Party opinion usurps public opinion

We are witnessing the slow death of public opinion in this country.  It’s being displaced by party opinion.

These days, more and more Americans are inclined to judge issues from a partisan viewpoint.  In March, according to a Pew Research Center survey, twice as many Republicans (53 percent) as Democrats (27 percent) said the economy was poor.  Yet, from everything we know, Republicans are not suffering more economic deprivation than Democrats.

Elections today are less and less about persuasion and more and more about mobilization: You rally your supporters in order to beat back your opponents.  Republicans did that in 2004, when President George W. Bush got re-elected with 51 percent of the vote. Democrats did that in 2012, when President Barack Obama got re-elected with 51 percent of the vote.

The public supports a transatlantic trade pact – for now

The long-discussed free trade agreement between the United States and the European Union was formally endorsed by President Barack Obama in his State of the Union address to Congress. Obama asserted that “trade that is fair and free across the Atlantic supports millions of good-paying American jobs.” A prominent presidential endorsement will not prevent a long and disputatious negotiation, but a trade pact could yield potentially huge economic rewards — and also provoke serious political opposition on both sides.

A U.S.-EU trade and investment agreement has been talked about for two decades but never actively pursued. On both sides of the Atlantic, there has been fear that any such deal between the world’s two largest economies would disadvantage poorer nations. A U.S.-EU accord was deemed less desirable because greater economic benefits could be gained from a global trade agreement involving more countries. Trade experts worried that it would undermine the legitimacy of the World Trade Organization. Moreover, based on past bitter disputes over frozen chickens, bananas, genetically modified organisms and other food and agricultural products, a U.S.-European Union agreement was deemed too politically fraught and difficult.

Now, with Europe in recession, the United States unemployment rate stubbornly high and both regions groaning under public indebtedness, Brussels and Washington are looking for ways to stimulate jobs and growth without spending money. Liberalization of trade and investment is seen as one way to do that.

The State of the Union’s history of empty green promises

An aura of excitement and predictability surrounds the president’s annual State of the Union speech: A few days of hyped drama and TV punditry build to a political Woodstock featuring generals, justices, senators, Cabinet secretaries and House members, all under one roof. Up in the balcony, the First Lady plays host to a few iconic citizens who recently shared a heroic moment of fame with America.

Environmentalists are on higher-than-normal alert this year, after President Barack Obama made a sweeping inaugural promise to tackle climate change, an issue he had largely avoided during his first term.

If the president reprises that theme in Tuesday’s speech, he’ll join a long list of predecessors warning that we’re leaving a mess for future generations. And if past is prologue, the green talk and pageantry may be the only things delivered on the president’s lofty words.

The U.S. needs a completely different approach to Iran

As Washington and its great power partners prepare for more nuclear negotiations with Iran, the Obama administration and policy elites across the political spectrum talk as if America is basically in control of the situation. Sanctions, we are told, are inflicting ever-rising hardship on Iran’s economy. Either Tehran will surrender to U.S. demands that it stop enriching uranium or, at some point, the American military will destroy Iranian nuclear installations.

This is a dangerous delusion, grounded in persistent American illusions about Middle Eastern reality. Because of failed wars-cum-occupations in Iraq and Afghanistan; a war on terror that has turned Muslim societies ever more firmly against U.S. policy; and de facto support for open-ended Israeli occupation of Arab populations, America’s position in the region is in free fall. Increasingly mobilized publics will not tolerate continuation of such policies. If, in this climate, the United States launches another war to disarm yet another Middle Eastern country of weapons of mass destruction it does not have, the blowback against American interests will be disastrous. Nonetheless, that is where our current strategy – negotiating on terms that could not possibly interest Iran while escalating covert operations, cyber-attacks, and economic warfare against it – leads.

For its own interests, Washington must take a fundamentally different approach. President Obama needs to realign U.S. relations with the Islamic Republic of Iran as thoroughly as President Nixon realigned relations with the People’s Republic of China in the early 1970s. Simply “talking” to Iran will not accomplish this.

Has Obama administration gone wobbly on Syria?’

Syria, chemical weapons and the United States. If nothing else, President Barack Obama last month was emphatic. “I want to make it absolutely clear to Assad,” Obama declared at the National Defense University in early December, “….The world is watching. The use of chemical weapons is…totally unacceptable….[T]here will be consequences and you will be held accountable.”

But what a difference a New Year makes. At a January 10 news conference, the administration’s senior security officials, Defense Secretary Leon Panetta and Joint Chiefs of Staff head Martin E. Dempsey, recoiled: Consequences won’t involve the Pentagon. Better wait to secure the arsenal after Syrian President Bashar al-Assad falls, Panetta said. Dempsey stated: “Preventing the use of chemical weapons would be almost unachievable.” The result, as Panetta explained: “We’re not working on options that involve boots on the ground.”

Assad must have smiled. Washington had gone wobbly on chemical weapons. With the deterrent value of the president’s remarks in question – and one unconfirmed report that Syria used a chemical agent in Homs on December 23 – the chemical specter remains. This raises the key question: Would Obama really stand by if the Syrian government gassed thousands of its citizens?

The limits of U.S. influence in Israel

A victory in Tuesday’s Israeli elections by Prime Minister Benjamin Netanyahu’s right-wing Likud Yisrael Beiteinu alliance and the ascent of even more extreme parties are indications of Israelis’ continued move to the right.

It is also an indication of the limits and the challenges faced by the Obama administration in its relationship with Israel. Despite Netanyahu’s obvious preference for President Barack Obama’s Republican opponent, Mitt Romney, in the U.S. presidential elections — and a sense that he was intervening through proxies — Obama’s ability to influence the outcome of the Israeli elections has been negligible.

The Obama administration’s situation underscores the need for a quick decision about its policy toward whatever type of governing coalition emerges in Israel after the election. If Netanyahu forges a government with parties to his right, the White House should drop the pretense of possible peace negotiations and formulate policy accordingly: It can either produce a detailed peace plan or fall back on highlighting international law and human rights and the obligations of the parties that they entail.

Washington’s next steps on Syria

The United States has officially recognized the National Coalition for Syrian Revolutionary and Opposition Forces as the legitimate representative of the Syrian people. It has also designated al Qaeda in Iraq-affiliated Jabhat al-Nusra, which often leads the fighting effort in Syria, as a terrorist organization, thus making it illegal for anyone to buy it even a cup of tea. This double-barreled political action, after months of hesitation, is intended to convey the message that Washington supports the relative moderates of the Syrian opposition wholeheartedly but wants to exclude from its ranks Sunni extremists.

The trouble is both moves come late in the game. At this point, U.S. influence may not be sufficient to accomplish the objectives.

A lot depends on the Syrians themselves. Most Syrians do not want to see sectarian slaughter following the current civil war. The question is whether they will be willing and able to restrain the Sunni extremists in their midst. It will take courage and commitment for today’s revolutionaries to speak up and protect Alawites, Christians, Druze and Shia who are suspected of supporting the Assad regime. Mass atrocity in the aftermath of political upheaval is more the rule than the exception. There is little sign that the international community will be able to mount a serious protection effort.

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