Thursday, 27 April 2017

In search of green shoots

Caught between a more slowly growing China and the nationalist and protectionist reflexes of President Donald Trump's United States government, Africa is in pressing need of an economic boost. Last year marked a harsh coda to the commodity boom, with the continent's biggest economies treading water or in recession. Initially, the international financial institutions forecast a turnaround starting in 2017 after average growth rates of 1.3%, the lowest for two decades. Already they are qualifying their optimism.

Both the International Monetary Fund and World Bank have cut their average African growth forecasts to 2.6% this year, down from January’s 2.9%. They have also cut Africa growth forecasts by four percentage points for 2018. Four key factors inform the grimmer predictions: continuing weakness in the four biggest economies (Nigeria, South Africa, Egypt and Algeria) which make up almost two-thirds of African output; continuing low foreign and local investment; shrinking access to international finance for companies and governments; and heightened political risks, such as the lack of effective policies in South Africa or Nigeria, prospects of difficult elections and transitions in Kenya and Angola, and conflict in Congo-Kinshasa.

Again, impressive growth is forecast in the brightest economic spots, such as Ethiopia, Senegal and Tanzania, but their economies are still not big enough to power a more generalised regional recovery.

Wednesday, 19 April 2017

WORLD BANK/IMF: African finance chiefs fly to Washington DC for tough summit

This week we have a whistle-stop tour of international meetings, negotiations and even court cases. We start with the spring meetings of the Bretton Woods institutions in Washington, and then on to South Africa, reeling from a ratings agency downgrade. Our correspondents are monitoring the economic travails in Zambia and Kenya, both struggling with mounting debts and deficits. Finally, a battle of the titans – Beny Steinmetz is suing George Soros for defamation in a New York court over the Guinea mining saga.

WORLD BANK/IMF: African finance chiefs fly to Washington DC for tough summit
Over 100 African finance ministers and central bank governors are due in Washington DC for a particularly contentious series of meetings of the World Bank and the International Monetary Fund on 20-23 April. The crossfire has already started with Wilburn Ross, the United States’s new Commerce Secretary, already dismissing IMF warnings about US protectionism as ‘rubbish’. A few days earlier, Christine Lagarde, the IMF Managing Director, had reported that growth in rich and developing economies should average 3.4% this year but were threatened by the ‘sword of protectionism’.

Lagarde warned that any shift to restrict trade would undermine growth all round, as would efforts to take apart the international institutions – such as the IMF, World Bank and UN – that have tried to manage the global economy over the past 70 years. US President Donald Trump has promised sharp cuts to the US trade deficit with Asia and Europe and to slash funding to international institutions, particularly in areas such as projects to adapt to climate change.

The Trump administration is yet to spell out its planned cuts to the IMF and World Bank budgets but the organisations are in ‘defence mode’ at this year’s spring meetings, say officials. A sign of this is that the Bank has postponed discussions about a capital increase, fearing that the US would simply veto it. However, there is a surge of demand for Bank lending, particularly from commodity dependent economies in Africa and Asia, which are struggling to balance budgets as revenues fall. Ghana, Kenya, Nigeria and Tanzania are all in line for big World Bank loans to finance new road, power and agriculture projects.

Last year, Bank lending soared to nearly US$30 billion but such levels will not be sustainable in the coming years without a capital increase. As the biggest shareholder in the Bank, the US position on this will be critical. A senior US Treasury official, Adam Lerrick, has called for the Bank to stop lending to middle-income countries, which he argues should rely on commercial finance.

Responding to such calls, Bank President Jim Yong Kim has promised much higher priority will be given to mobilising commercial finance, through guarantees, and finding ways for new public-private partnerships.

A new idea for a ‘Big Bond’ for Africa, proposed by Nancy Birdsall of the Center for Global Development in Washington DC and Nigeria’s former Finance Minister Ngozi Okonjo-Iweala, could raise as much as $100 bn for an African infrastructure fund by using international capital markets to leverage foreign aid funds.

Under the scheme, donor countries would borrow in the markets against future aid flows taking advantage of the current low interest rates in Western economies. Donor countries would pass on the interest costs to African economies but the loans would be much cheaper and have far longer maturities than the Eurobonds that many countries have been issuing to pay for big infrastructure projects.

This week Senegal announced it will be floating another Eurobond to finance roads and railways linked to its new international airport and Nigeria is also planning to issue another $500 mn bond.

SOUTH AFRICA: Dlamini-Zuma throws her hat in the ring
In the rituals of leadership contests in the African National Congress, the speech by Nkosazana Dlamini-Zuma to the ANC cadres forum on 13 April was as close it gets to a campaign launch. Speaking in the Free State, alongside the Premier Ace Magashule, a ultra-loyal supporter of President Jacob Zuma, Dlamini-Zuma pushed the new line on radical economic transformation.

She upped the partisan rhetoric accusing ‘untransformed schools’ – ANC speak for white-dominated – of teaching pupils to hate the ANC and lambasted banks for closing on 7 April to allow their employees to join marches against the Zuma presidency. ANC dissidents and opposition supporters say both claims are demonstrably false. The fact that Dlamini-Zuma bothers to make them suggests the ANC will see a hard-fought campaign ahead of leadership elections in December.

In contrast, Vice-President Cyril Ramaphosa, the main rival to Dlamini-Zuma in the race for the ANC Presidency, has been saying the government should listen to the message of the mass street protests seen in Johannesburg, Pretoria and Cape Town in recent weeks. Other ANC figures such as former Presidents Thabo Mbeki and Kgalema Motlanthe are urging all MPs to vote according to their conscience in the forthcoming motion of no confidence in President Zuma.

That parliamentary vote has been postponed until early May while the Constitutional Court considers an application to allow MPs a secret ballot. Those backing the application hope that if it succeeds, it emboldens enough MPs from the ANC caucus (it would take about 70) to back the opposition motion against Zuma.

ZAMBIA: Lungu’s government seeks IMF loan as opposition leader is detained
Government officials are trying to dampen down worries of a synchronized meltdown of politics and the economy in the country following the detention of opposition leader Hakainde Hichilema and mounting state arrears to international institutions.  On 14 April, President Edgar Lungu insisted he would not intervene in the prosecution of Hichelema on treason charges, which carry the death sentence.

State prosecutors launched the case against Hichilema after clashes between his supporters and those of Lungu as they drove towards Western Province on 8 April for the Kuomboka celebrations. The day after the clashes, police raided Hichilema’s home in Lusaka, arresting him and many of his party workers (AC Vol 58 No 8, Lungu’s way and the highway). The planned prosecution of Hichilema rapidly generated protests from sundry rights groups.

Yet government officials insist the controversy will not affect Finance Minister Felix Mutati’s application for a US$1.6 bn. loan from the International Monetary Fund this month. Although the IMF desperately tries to stay clear of partisan politics, it could come under serious pressure if the political climate in Zambia continues to deteriorate. Lungu’s spokesman Amos Chanda says if the IMF raises any questions about the country’s political conditions the government will simply walk away and won’t tolerate any external interference.

As the government’s debt and fiscal deficit balloon, foreign reserves have been falling despite stronger copper and cobalt prices. Economic growth is at its lowest since 1998.

KENYA: Economy under strain ahead of election
Hit by drought and a bank lending squeeze, Kenya’s growth is now forecast at 5.5% this year by the World Bank which has cut its earlier estimates by 0.5%. Last year Kenya’s economy grew 5.9% and the Bank had expected further expansion this year.

Central bank governor Patrick Njoroge blames the poor rains for much of the economic slowdown but others say the cap on interest rates is cutting bank lending and generally slowing down business. This scarcity of loans is hitting industries and construction particularly hard.

Others are sounding warnings about the rising national debt as well as more non-performing loans in the commercial banks. However, the government is planning to borrow another US$1 bn. on the international markets to plug its budget deficit.
Treasury Secretary Henry Rotich had aimed to cut the deficit to 6% of gross domestic product this year, down from 9% in 2016. But that would entail some harsh curbs on state spending which would do nothing to help President Uhuru Kenyatta’s campaign for re-election in August.

GUINEA: Beny Steinmetz sues George Soros for mining losses at Simandou
The bonanza for top law firms of lengthy and complex cases surrounding Guinea’s mega iron-ore project is in no danger of ending. The latest twist is a defamation case seeking US$10 bn. damages brought by mining magnate Beny Steinmetz against billionaire financier George Soros for losses caused by the protracted legal row over the legitimacy of contracts to exploit the Simandou mine.

For a flavour of the case to be heard in the Southern District Court of New York, the plaintiff’s statement opens with this assertion: ‘Soros has spent untold millions fabricating a positive public image of himself and the organisations he controls. Yet in reality Soros is a racketeer billionaire who acts in utter disregard of the rule of law and the rights of others.’

In what could be the most comprehensive effort to put civic society organisations on trial, Steinmetz claims that Soros funded law firms, anti-corruption groups, private investigators and officials in Guinea to strip his company of its mining licences at Simandou. Soros was motivated by personal animus, rivalries over a business deal in Russia and hostility to the state of Israel, claims Steinmetz.

But Soros spokesman Michael Vachon dismissed Steinmetz’s claims as ‘frivolous’ and ‘entirely false’. The case was a public relations stunt, said Vachon, ‘to deflect attention from Beny Steinmetz Group Resources’ mounting legal problems across multiple jurisdictions.’  This latest case will join an epic catalogue of litigation over the Simandou project which has seen the three major mining companies involved – BSGR, Anglo-Australian Rio Tinto and Brazil’s Vale – all try to sue each other as the legal disputes multiply.

Sadly, this latest case will do little to bring forward production at Simandou or raise the $20 bn. needed to start mining the massive reserves of iron ore there.

Thursday, 13 April 2017

More credit lines needed now

Among the most stubborn collateral damage wrought by the West's financial crisis of 2008 was the cutting of international credit lines to Africa. The initial rationale for severing the lines was knee-jerk and computational: if Western banks and ratings agencies had failed so badly, African banks would probably have made the same errors. In fact, some African financial institutions have demonstrated much higher prudential standards than their Western counterparts. Doubtless the cumulative effects of the 2008 crisis were to push down commodity prices and with them, the revenue of many African governments.

A boost for African banks has been the fast-growing relationship between them and the private and state financial institutions in Asia's key economies, such as China, India, Japan and South Korea. Along with higher foreign reserves and more robust monetary policies, that provided Africa's state treasuries and banks with something of a cushion.

But the failure to resolve many shortcomings in the West, together with the slowdown in emerging markets, is redoubling their impact on Africa's banks. Most of all, this is felt in more sharp cuts to the number of international credit lines that African banks can access. This quickly hits the local economies, particularly in East Africa currently, slowing down trade and production. The credit line crunch should be a leading topic at the African Development Bank's annual meeting next month.

Monday, 10 April 2017

NIGERIA: Police raids, intercepts and careless whispers in latest twist in Shell and ENI's secret deal saga

This week we start in Milan, Italy, where the state prosecutor is to open preliminary hearings on two multinational oil companies accused of massive corporate fraud in Nigeria's oil industry. Then to Nairobi where a committee of the opposition alliance has just recommended former Prime Minister Raila Odinga as its presidential candidate in August's elections. In South Africa, there are renewed rumblings about President Jacob Zuma's efforts to push through a mega-deal on nuclear power with Russia. In Kinshasa, the opposition is fuming at President Joseph Kabila's choice of Prime Minister and is planning a mass protest next week.

NIGERIA: Police raids, intercepts and careless whispers in latest twist in Shell and ENI's secret deal saga
The probe into how Royal Dutch Shell and Italy's ENI came to buy the OPL 245 oil concession – one of the biggest in the Gulf of Guinea – takes on a new lease of life when court hearings open in Italy this week. The companies face claims that they connived with former oil minister Dan Etete to pay bribes to secure the rights to buy the block for US$1.1 billion, seen as a bargain basement price at the time of the deal in 2011. Officials at Shell and ENI have repeatedly insisted they broke no laws.
The office of Fabio de Pasquale, the state prosecutor in Milan, set out the timetable to Africa Confidential. Preliminary hearings will consider the case against ENI and Shell this month and could continue until June.

Should Italy's prosecutors proceed against the companies, the main case will open in September and October. Although the Italian case will focus on the role of ENI and Shell, several business people and former officials are also under investigation by Nigeria's Economic and Financial Crimes Commission. Alongside these state investigations, a cache of Shell emails was leaked to the press and made headlines today (10 April) for the online news service Buzzfeed and the Italian newspaper Il Sole 24 Ore while the anti-corruption lobbying organisation Global Witness also published today a major report analysing much of the same material.

The deluge of new material raises the question as to whether the authorities in Britain and the United States – Shell and ENI are publicly listed in both countries – will launch their own investigations. Cases involving multinational companies accused of corporate fraud are rarely prosecuted in those jurisdictions. Instead, they tend to be settled by hugely costly Deferred Prosecution Agreements, essentially a corporate plea bargain. Many anti-corruption lawyers do not believe these deals deter fraud and corporations come to see them as yet another 'cost of doing business'. The fines, however, can be a substantial source of income for budget-strapped state prosecutors.

KENYA: Which is the biggest electoral threat to President Kenyatta  – economic woes or Raila Odinga?
News that a technical committee of the opposition National Super Alliance (Nasa) has picked former Prime Minister Raila Odinga as the coalition's presidential candidate has deeply divided activists ahead of national elections on 8 August. The committee assessed the candidates' qualities and Odinga came first, but the final decision is in the hands of the leaders of the four coalition partners.
Some see the choice of Odinga, 72, as inevitable given his high national profile and long experience. Others argue that his candidacy will encourage voters in Central Province, the base of President Uhuru Kenyatta and where Odinga has many political foes, to come out strongly against him. Insiders say it is likely that Kalonzo Musyoka, another senior figure in Nasa, will become Odinga's running mate.

One problem with a Odinga-Musyoka ticket is that it leaves Musalia Mudavadi, an architect of the opposition alliance and a former Vice-President, out in the cold. In the 2013 elections, he ran his own presidential campaign, rejecting offers to join one of the rival alliances headed by Odinga and Kenyatta.

If the tricky choice of the presidential ticket puts pressure on the opposition and boosts President Kenyatta's chances of a second term, the country's economic woes could still tell against him. Bankers in Nairobi are warning about the government's rising indebtedness and criticising what they see as heavy-handed regulation of the financial sector. They also point to a 45% loss in the value of equities on the Kenya Stock Exchange over the last two years and the effects on the local economy of the appalling drought in the Horn of Africa.

The government's cap on interest rates has sharply cut the profits of Kenya Commercial Bank but, more importantly, has led to a credit squeeze and a block on growth. Should the economy suffer further hits, the opposition could benefit despite reservations about its candidates.

SOUTH AFRICA: Claims that the Russian nuclear deal is reviving follow Gordhan's sacking
After a torrid week of national protests and ratings agency downgrades in the wake of President Jacob Zuma's midnight sacking of Finance Minister Pravin Gordhan on 30 March, there are reports that the government is seeking to revive the controversial $72 billion nuclear power deal with Russia. Also, there is speculation that Zuma may be planning to bring back his close ally, Brian Molefe, the disgraced former head of state power company Eskom into government.
Last month Molefe was made a member of parliament for the African National Congress and some sources in the Treasury suggest he could be appointed Director General there after Lungisa Fuzile resigned the post following Gordhan's sacking. That could give Molefe a decisive role in the management of the nuclear deal.

The independent Johannesburg-based weekly City Press reported on Sunday (9 April) that it had seen internal documents from Eskom that indicated discussions had been reopened on the Russian deal in recent weeks. A final decision could be taken by Zuma prior to national elections scheduled for April 2019.

The role of the Treasury and new Finance Minister Malusi Gigaba would be critical in the negotiations. Gordhan strongly opposed the deal, raising questions about its value for money and financial risk. Ratings agencies Fitch and Standard & Poor's, which downgraded South Africa's debt to junk status after the sacking of Gordhan, have raised their own concerns about the financial viability of the nuclear deal.

CONGO-KINSHASA: Kabila tests opposition with unilateral appointment of new Prime Minister
President Joseph Kabila's choice of a new Prime Minister Bruno Tshibala last Friday (7 April) broke the rules agreed between the government and the political parties and looks aimed at dividing the opposition. Kabila announced his choice ten days ahead of a scheduled demonstration by the opposition against what they describe of the government's repeated violation of political agreements on the running of national elections, which are due by the end of this year.

Tshibala, formerly a top figure in the main opposition Union pour la démocratie et le progrès social (UDPS), was expelled from the party during a dispute about who would succeed its historic leader Etienne Tshisekedi, who died in February. After some manoeuvring, Tshisekedi's son Félix emerged as the new leader of the UDPS and of the national opposition coalition.

Another challenge for the opposition is the organisation of a funeral in Kinshasa for Etienne Tshisekedi. It is likely to be a massive rallying point for oppositionists but the government may again use deadly force to shut down such an event, hugely inflaming local opinion. Organising such a memorial would require cooperation and negotiation between Kabila and the UDPS: something which looks out of the question for now. Today the police banned all gatherings of more than ten people as security forces deployed in strength on the streets of the capital.

Monday, 3 April 2017

SOUTH AFRICA: Close-run confidence vote looms after Zuma sacks Gordhan

Again, we start in the week in South Africa as the country and its politicians react to President Jacob Zuma's sacking of Finance Minister Pravin Gordhan. A different level of power play is going on in Abuja where the head of Nigeria's anti-corruption organisation has just launched a damning report on President of the Senate, Bukola Saraki. And then to Washington where Egypt's President Abdel Fatah el Sisi is due to meet with President Donald Trump and the other big summit in the United States is a Trump meeting with China's President Xi Jinping where some diplomats hope that Africa might provide one of the few points of agreement.

SOUTH AFRICA: Close-run confidence vote looms after Zuma sacks Gordhan
This time the numbers may not work for President Jacob Zuma. Under siege within the top echelons of the governing African National Congress after his peremptory sacking of Finance Minister Pravin Gordhan and deputy Mcebisi Jonas in a reshuffle late on 30 March, Zuma could face a tough no-confidence vote in parliament within ten days.

On 2 April, parliamentary speaker Baleka Mbete announced she would return early from an overseas trip to consult on opposition party requests for parliament to be recalled – it is currently in recess until 3 May – to hold a confidence on Zuma.

Until now, Zuma and his acolytes, relying on the ANC's 62% majority in the 400-seat parliament, have easily seen off four confidence votes launched by the opposition parties since 2009. In the last such vote last November, several dissident MPs and ministers failed to attend the vote, but most of the ANC's  249-strong parliamentary caucus backed Zuma.

This time top ANC officials such as Vice-President Cyril Ramaphosa, Secretary General Gwede Mantashe and Treasurer General Zweli Mkhize have publicly criticised Zuma, and several senior figures in the party have said they would vote according to their conscience. The South African Communist Party has publicly opposed Zuma's reshuffle, specifically the sacking of Gordhan and Jonas.

The timing of the vote could prove critical as Zuma's opponents would want to maximize the the current wave of hostility to the President. Their best chance would be to reconvene parliament before Easter.

At least 70 ANC MPs would have to vote against Zuma to get the simple majority needed for a no-confidence motion to succeed. That now looks possible with opinion in the country and party moving strongly against Zuma.

A successful vote of no confidence would trigger an extraordinary meeting of the ANC's National Executive Committee in which Zuma would be likely to face a motion for his recall. That was the fate of former President Thabo Mbeki, who was brought down in 2008 after an extended and skilful campaign against him by Zuma. The usurper then could now meet the same fate this year.

EGYPT/USA: El Sisi and Trump confer on anti-Islamist fight
An assiduous wooer of Donald J Trump, Egypt's President Abdel Fatah el Sisi will become the first Middle East leader to meet the new US President in Washington DC on 3 April. El Sisi, who was the first international leader to congratulate Trump on his election victory last November, seeks military and diplomatic backing for his fight against Islamist groups.

First prize for El Sisi would be for Trump to endorse the Eguptian leader's ban on the Muslim Brothers, Al Ikhwan el Muslimeen, with a declaration that the US would treat the group as a terrorist organisation. That would have serious consequences for the group's finances and its supporters in countries such as Qatar and Turkey.

El Sisi is also looking for US financial help. Egypt is a third of the way through a $12 billion adjustment programme backed by the International Monetary Fund but inflation is running at about 30% after the government let the pound float, and it has lost half its value against convertible currencies.

The two may also discuss the war in Libya where rogue general Khalifa Haftar, backed by Egypt and the United Arab Emirates, has been trying to win US security and diplomatic support for his campaign against Islamist militias in the west of the country.

NIGERIA: Anti-corruption czar releases dossier on Senate president
The rumbling row between Ibrahim Magu, chairman of the Economic and Financial Crimes Commission and Bukola Saraki, the President of the Senate has escalated into a full-blown political clash over claims about the corrupt diversion of N3.5 billion (US$11 million).

Over the weekend Magu's office released a report accusing Saraki's aides of having used some N3.5 billion to bribe National Assembly members to drop an investigation into the whereabouts of overpayments made by state governments to the Treasury to meet debt service obligations. Following the government's negotiation of some $18 bn. of debt relief with the Paris Club of official creditors in 2005, state governments were owed a refund on the sums they had submitted to service the debts.
The EFCC report claims that part of the debt relief sent to the state governor's forum, chaired by Saraki at the time, was improperly diverted. But Senators such as Ali Wakili and Fatima Raji-Rasaki, both staunch allies of Saraki, have rubbished the EFCC allegations. This row follows the Senate's rejection, for the third term running, of President Muhammadu Buhari's request for Magu to be confirmed as substantive chairman of the EFCC.

There is now a stalemate between the Presidency and the Senate over the matter. The latest row between Saraki and Magu is unlikely help any resolution: in theory, Magu's candidacy is finished but it seems he still has some backing in the presidency.  Next stage may be some of the discreet negotiations in which Saraki is a specialist.

CHINA/USA: Could Africa be point of agreement in Xi-Trump summit?
When China's President Xi Jinping meets President Donald J Trump in Florida on 6-7 April, Africa policy could provide one of the few points of agreement. At least, that is the view of a new report put together by a team of senior diplomats urging a common China-US approach on key issues confronting Africa. So far Trump has shown less interest in Africa than in any other region. And it is an area where President Xi has far more knowledge and experience than Trump.

The diplomats arguing for better China-US cooperation in Africa include: Mohamed Ibn Chambas who heads the United Nations office in West Africa; Zhong Jinhua, Beijing's former special representative on African affairs; and Princeton Lyman, a former ambassador for the US to Nigeria and South Africa. They mapped out substantive areas of cooperation which included: economic growth and development; mitigating conflict; enhancing political stability; and fighting violent extremism and organised crime.

There are a few examples of Sino-US cooperation in Africa such as the anti-piracy operations in the Horn of Africa and the their planned replication in the Gulf of Guinea. There may also be room for talks between the two leaders on other areas of security cooperation in Africa, backing local efforts against jihadists and other insurgents.

But Xi will want to know much more about the Trump administration's planned cuts to the UN and foreign assistance budgets, as well as its renunciation of the Global Climate accords reached in Paris in December 2015.