United Nations Economic Commission for Africa blogs

Maritime Safety, Security and Development in Africa

eskinder.tsegaye — Mon, 10 Oct 2016 12:33:15 +0000

10 October 2016

Africa boasts of an abundance of natural resources, in particular aquatic and marine resources, with a potential that has not yet been fully tapped in the context of economic growth and sustainable development. The African Great Lakes constitute the largest proportion of surface freshwater in the world (27%). This becomes therefore a globally important strategic resource as reserves of freshwater are dwindling in most parts of the world. In fact, Lake Victoria is the third largest fresh water lake in the world by area, and Lake Tanganyika is the second largest in volume and depth in the world. Freshwater and ocean fish make a vital contribution to the food and nutritional security of over 200 million Africans and provide income for over 10 million annually.

From the 54 African States, 38 are coastal States. Maritime zones under Africa’s jurisdiction total about 13 million square kilometres including territorial seas and approximately 6.5 million square kilometres of the continental shelf. We have two thirds of the equivalent area of Africa's landmass under the sea. This is huge! One of our Oceans, the Indian Ocean, is the third largest in the world carrying a large part of the world’s trade by sea. The significant dependence of African countries on international trade makes maritime transport crucial for the continent’s economic development. Indeed more than 90% of Africa's imports and exports are conducted by sea and some of the most strategic gateways for international trade are in Africa.

The African Union rightly calls Africa’s Blue Economy "a new frontier for the continent's renaissance" in its 2050 Africa’s Integrated Maritime Strategy (AIM).We have a hidden treasure under and within our seas, which needs to be revealed, protected and built upon to contribute to the structural transformation process of our continent. The potential is significant. Africa’s maritime economy currently is linked to about 70% of the continent’s GDP, generating about three quarters of government’s fiscal revenues. With Africa’s expanding economies coupled with rapid population growth and urbanization, we can expect increased pressure on coasts and marine resources. Port throughput on the continent is expected to rise from 265 million tons in 2009 to more than 2 billion tons in 2040. Safer and more efficient ports could strengthen regional integration in the continent and could also play a crucial role in the implementation of the Continental Free Trade Area (CFTA). It would also bolster the emerging African manufacturing industry and also generate significant revenues for governments as well as employment opportunities for many Africans. Ensuring maritime security and safety is paramount for Africa’s development.

It is known that the threats which jeopardise Africa’s maritime area include transnational organised crime such as illegal arms and drug trafficking, piracy and armed robbery at sea, illegal oil bunkering, crude oil theft along African coasts, maritime terrorism, human trafficking, people smuggling and asylum seekers travelling by sea. Illegal, unreported and unregulated (IUU) fishing and overfishing, as well as environmental crimes such as deliberate shipwrecking and oil spillage, and the dumping of toxic wastes are also of significant concern. Another major challenge is container traffic, as more than seven million large and small containers are moving around the world every day, the ability of port and customs official to check their contents is limited. Recent experience has indicated that these containers can be used to smuggle everything from terrorists to illegal substances.

Existing vulnerable legal frameworks combined with the lack of and/or poorly maintained aids to navigation, the absence of modern hydrographic surveys, up-to-date nautical charts as well as maritime safety information in a number of African States are inexistent or insufficiently developed which is detrimental to maritime security and safety. Even where they are developed ocean governance is extremely difficult in the high seas and on a regional scale, the patchwork of regulations can be very complex with even less ability for enforcement.

Most of these threats are geopolitical in nature and are particularly complex as they are multifaceted and interconnected. Their consequences are also dire. The increasing piracy acts have become a major impediment to the competiveness of African ports over the past decades. Piracy attacks increase not only shipping costs to Africa but also affect directly port traffic flows with ships avoiding risky routes. The attacks have been particularly detrimental, reducing traffic flow to, and from African ports located between the Red Sea and Indian Ocean, near the Somalia coast, and in the Gulf of Guinea. Even though the piracy in the Strait of Malacca, next to Malaysia and Singapore, is significantly higher than Somalia, the perception is not that. Besides loss of lives, assets and opportunity costs foregone, the wider implications of maritime terrorism are that any political instability in a coastal African state is capable of generating threats to global traffic and freedom of navigation and could trigger a contagion effect inland. This could lead to a vicious circle where the threats and impacts are exacerbated by and/or lead to political instability, corruption, lack of state control, among others.

The strategic importance of securing our maritime zones cannot be taken lightly. A holistic and integrated approach based on combined metrics of growth and progress in which economic success is linked with environmental and material stewardship is necessary to address existing threats and vulnerabilities and realize the full potential of Africa’s Blue Economy requires, social responsibility and the highest governance and transparency standards.

There are some key ideas we must keep in mind while crafting this approach. Firstly, we need to take stock of our “blue” endowment in order to protect these important assets and optimize their use and management to achieve structural transformation and inclusive sustainable development. The Economic Commission for Africa recently launched its publication on the Blue Economy, which offers a comprehensive step‐by‐step guide to help African countries and regional bodies to better understand the vast potential of the Blue Economy. It provides policy makers, regional organisations, development practitioners and other stakeholders on the continent and beyond, with an operational framework, case studies, comparative experiences and examples of policy formulation processes as further guidance material to better mainstream the Blue Economy into their national development plans, strategies, policies and laws, aiming to foster structural transformation.

Secondly, regional cooperation must be at the forefront to effectively confront the threats to maritime security. Harmonized transnational co-ordination and regulation must be strengthened to address illegal activities over the coastal areas and across borders taking into consideration different jurisdictions relating to territorial waters, exclusive economic zones (EEZs), or high seas in a context of poor border demarcation. This will require strengthening monitoring, control and surveillance in these different spaces. The role of regional and sub-regional bodies, such as the African Union and the RECs, would be crucial, as would that of other regional cooperation mechanisms.

Thirdly, the connections and interdependence of different economic sectors, and enhancing responsiveness to emerging sectors is a must. It is equally fundamental to recognize climate change imperatives through the prioritizing of resource efficiency and low carbon footprint models with equity and social inclusion, and job creation.

African countries must squarely address these challenges, take full stock and realize their transformative potential in the Blue Economy context. If properly secured and harnessed, our Blue Economy can be a major contributor to continental transformation and growth, advancing knowledge on marine and aquatic biotechnology, the growth of an Africa-wide shipping industry, the development of sea, river and lake transport and fishing; and exploitation and beneficiation of deep sea mineral and other resources.

*Based on my speech at the opening of the side events of the African Union Extraordinary Summit on Maritime Security and Safety and Development in Africa, held in Lomé on 10 October 2016

Giving Wings to Africa’s Regional Integration

eskinder.tsegaye — Wed, 14 Sep 2016 07:39:16 +0000

14 September 2016

As the world gets used to new forms of interconnectedness, Africa is not left aside. Today, more than 700 million Africans are subscribed to mobile services with many wealthy Africans proudly displaying more than one cell, a symbol of a newly acquired social status. The proliferation of mobile networks has transformed communications, businesses or banking, enabling a jump unimaginable just a few years ago. Thanks to technology we are witnessing new forms of integration.

Is aviation going to be the next big integration magnet?

Unfortunately, even though Africa is home to 15% of the world’s population it only accounts for a relatively small proportion of air traffic, in fact less than 3% of the world’s total. Small as this may be, the African aviation market is growing fast.

International air passenger numbers have grown consistently year on year since 2004 except in 2011 where the numbers dipped as a result of political instability in parts of North Africa. From less than 40 million passengers carried in 2004 by African airlines, passenger numbers increased to 73.8 million in 2013. Domestic passenger numbers within the region also increased significantly reaching 28 million in 2013[1] . This growth is projected to continue. Boeing’s long term forecast for 2014-2033 indicates that, driven by a positive economic outlook, increasing trade links, and the growing middle class, traffic to, from, and within Africa is projected to grow by about 6 percent per year for the next two decades. This demand will translate into a demand for an additional 1,170 new airplanes, valued at USD 160 billion[2]. But as with all good things the proof of the pudding is in the eating.

According to the Air Transport Action Group[3], in 2014 the aviation industry in Africa supported 6.8 million jobs and contributed USD 72.5 billion to Africa’s GDP. This accounted for 11% of the jobs and 3% of the GDP supported by the air transport industry worldwide.

These encouraging developments however do not reveal some of the major obstacles still faced by the aviation industry in the continent. It remains one of the most unsafe regions to fly, it has lagged behind others on skies liberalization, its airport infrastructure continues to require massive investments and the training of skilled personnel is not being properly planned.

African airlines consolidation is another challenge. During the 1970s and 1980s there were about 36 African airlines of which 26 had intercontinental flight services. Today there are only about 12 African airlines with intercontinental operations. Over the last two decades a total of 37 new airlines were launched in Africa but almost all of them failed. Most countries continues to act solo and motivated by choices other than economic. We continue to see attempts to create or sustain national carriers, opposing international trends. It is true that Middle East carriers and the good performance of Ethiopian Airlines contradict the doomsayers of state-owned airlines, but these are exceptions that need to be understood in their plenitude. 80% of the continent’s long haul traffic is dominated by non-African carriers.

The average cost of a flight in Africa is higher than anywhere else in the world. High landing fees, exorbitant taxes levied on airfares as well as above average aviation fuel prices, almost 30% higher than in Europe, do not help.

Funding access for the aviation industry is uneven. Dubai, Abu Dhabi and Qatar-based airlines have reportedly enjoyed a host of benefits valued at more than USD 42 billion over the past decade. That includes subsidized access to capital and sponsored first class infrastructure. American commercial aviation has also benefited from its government’s support valued at USD 155 billion, since 1918. Obviously African airlines are not in the same league and have been left to fend for themselves. Without the same easy access to capital markets, export credit financing (which can cover up to 85% of the actual aircraft price), or insurance subsidies, African airlines either have to finance the difference from their own funds or opt for junior loans with punitive rates from commercial banks; or lease aircrafts at an even heavier cost. The financing options open to African carriers dwarf their chances for expansion. It is therefore hardly surprising mega carriers are doing so well, including in their operations in Africa. They have the advantage to expand quickly, with space to build a market from scratch, increase market shares and continue investing heavily in service and marketing.

Intra –African connectivity is so mediocre that any passengers have to travel thousands of miles out of the continent just to be able to make a connection to another African destination. A quarter of the intra-African routes are actually served by just one airline. Despite African states signing up for a full liberalization of the regional market at Yamoussoukro in 1999, restrictions and protectionism instead of being eliminated are becoming rather rampant.

What could constitute a good base for a turnaround? With regards to safety accidents 2014 marked a significant change. Despite aviation disasters dominating headlines that year, African airlines actually stood out for zero jet hull losses (write-offs) per 1-million flights compared to 2.22 in 2013 and 4.63 in 2012[4]. This is encouraging news, suggesting regional measures to improve safety records are working. Ethiopian Airlines is already leading the way amongst its continental competitors in terms of establishing ambitious targets meet them and turn a profit. With 93 destinations across 5 continents, including 53 in Africa its future looks promising. Having experienced a phenomenal 700% growth in its revenue since 2005, Ethiopian Airlines has demonstrated the strength to face difficult competition. However, as long as Africa fails to establish a single aviation market and countries continue to restrict African carriers while welcoming the European and Middle East competitors, the performance of Ethiopian Airlines may remain an exception.

Africa must move towards embracing a conducive and smart regulatory framework that liberalises its skies in order to realise a profitable and globally competent airline industry. A truly competitive sector will need to be innovative and prioritise the continent’s interests over national flags. An open skies policy would drive the cost of tickets down and increase substantially the number of flyers. According to IATA by just deregulating and liberating African air services in 12 key markets, an extra 155,000 jobs and USD 1.3 billion could be generated[5].

Evidence shows that open skies agreements have worked in other regions. For example in Europe, it increased exponentially the number of routes and provoked a 34% decline in ticket fares. Indeed where African nations have liberalised their air markets, either within Africa or with the rest of the world, positive benefits have resulted. For example the agreement of a more liberal air market between South Africa and Kenya in the early 2000s led to a 69% rise in passenger traffic. The 2006 Morocco-EU open skies agreement led to 160% rise in traffic with the number of routes operating between the two multiplying four fold[6]. Just allowing the operation of a low cost carrier service between South Africa and Zambia (Johannesburg-Lusaka) resulted in a 38% reduction in fares and 38% increase in passenger traffic. The continent has to create more space for low cost flying. As of 2013 the penetration of low-cost airlines in Africa was the lowest in the world, representing less than 10% of the continent’s total.

In an interconnected world, air travel is no longer a luxury, it is a necessity for a prosperous continent.

-------

Published as an op-ed in the East African on 12 September 2016

[1] Chingosho, E. (2014). 46th AFRAA Annual General Assembly. Report of the Secretary General. 10 November 2014, Algiers, Algeria

[2] Boeing Commercial Airplanes (2015). Current market outlook

[3] Air Transport Action Group (2016), Aviation: Benefits Beyond Borders report

[4] http://mg.co.za/article/2015-03-11-think-african-jets-are-flying-coffins-these-numbers-will-prove-you-wrong

[5] IATA (2014), Press release on the Significant Benefits of Liberalized African Air Markets http://www.iata.org/pressroom/pr/Pages/2014-07-07-01.aspx

[6] InterVISTAS Consulting ltd (2014).Transforming Intra-African Air Connectivity: The Economic Benefits of Implementing the Yamoussoukro Decision. Prepared for IATA in partnership with AFCAC and AFRAA

Book Review of: “Innovation Africa: Emerging Hubs of Excellence”

Minilik.Demissie — Thu, 11 Aug 2016 07:51:42 +0000

12 August 2016

At a time when Africa has bold aspirations, through Agenda 2063, to confront large scale challenges like the ascendant demographic curve, green industrialization and domestic resource mobilization, it is imperative that innovation be inclusive in order to facilitate the creation of decent jobs, generate investments, and contribute to the continent’s structural transformation. As a late comer, Africa has the advantage to leapfrog technologies, learn from others mistakes and reinvent things differently in a way that promotes sustainability as well as inclusiveness. But to succeed, deliberate policies are badly needed.

With this backdrop, the book “Innovation Africa: Emerging Hubs of Excellence” is a must read. Authors, Olugbenga Adesida, Geci Karuri-Sebina and João Resende-Santos not only illustrate Africa’s experience with innovation to date but also point to its power for transformation. From the very onset, one is reminded that “Africa is no longer the place it was in the past … the technological innovations taking place on the continent today offer the promise of transforming African countries from trading mainly in materials and commodities to trading in knowledge-intensive products.”

The book posits that the popular “Africa rising” narrative originates from external (non-African) perspectives vis a vis what economic development and innovation systems means for the continent. By default, this perspective ignores many of the realities and opportunities that actually exist on the continent. The book however offers a refreshing alternative; a Pan-African narrative and prospective framework to address the challenges of development as well as underdevelopment to match the African context. For instance, the authors advocate for the development of inclusive innovation systems; the practice of self-reliance as opposed to dependency; and the importance for strengthened human and institutional capacity which includes the richness of the African culture and its endogenous potential.

Through a medley of nine case studies, from Nollywood’s rise to Algeria’s steel industry, sizeable innovations from hubs across different regions of the continent, are showcased. The success factors as well as lessons learned are analysed and concrete policy recommendations offered on what must be done differently going forward. It becomes clear to the reader that Africa has the ability as well as potential to innovate and that there are a multiplicity of the players driving innovation. For example, the study of Cape Verde’s successful electronic government led by public sector, illustrates how policy driven innovation has reduced the costs and time of doing business and worked-well in the context of a small island developing country. An analysis of the mobile technology innovation ecosystem in Kenya demonstrates how a combination of deliberate policies, infrastructure development as well as having the government in the lead, have been instrumental in providing the enabling institutional and macroeconomic environment needed for the innovation to thrive. The story of Ghana’s Suame Magazine illustrates how the informal sector and its artisans have been key in the emergence of one of the country’s most important industrial zones specialising in engineering and manufacturing. While a study on the Palm Residue Industry in Egypt showcases how innovation has transformed agricultural by-products into a local treasure with social and economic benefits spearheaded by the academic sector in cooperation with the private sector and local community.

A clear take away is that for innovation to mature, thrive and be valued, it must be supported by a conducive ecosystem. More must be done if Africa is to fully harness innovation systems and compete in the new world economy. In turn the book offers a menu of the deliberate policies needed in order to step up the pace of innovation in Africa, making it a treasure trove for policy makers, academics, business leaders and the public at large.

There is an exciting opportunity just around the corner to make Africa the continent of the future if we just pay attention to the messages of this book.

Migration debates are becoming illogical*

Minilik.Demissie — Fri, 15 Jul 2016 06:04:48 +0000

15 July 2016

So far this year, the Italian coast guard has rescued more than 30,000 people from the Mediterranean Sea, acting with courage, compassion and efficiency. They deserve recognition from Africa because many of those souls are from the continent. Last year, more than 1 million people crossed the Mediterranean to reach Europe, many through Italy. This is a much larger number than in previous years. Of that number, about 68 per cent were from Syria, Afghanistan, Iraq and Pakistan. Of the top ten nationalities represented, only one in ten was African. The European agency dealing with the issue, Frontex, acknowledges that the number of irregular migrants from Africa pales in comparison with regular arrivals.

The humanitarian dimension associated with these latest developments has unfortunate similarities with boat people phenomena in the direction of South America, Australia, South China, Adaman, Aegean or Red Sea. Throughout history, ships were not only used for exploring new territories or to trade. Migration is a very old user of ships.

Stocks of migrants are normally accounted for in terms of nationalities and ID papers. But the phenomena precedes the modern territorial boundaries; indeed, many migration movements helped shaped them. A sense of history is therefore essential to understand the complexity of people’s mobility.

According to official statistics 250 million people currently live outside their countries of origin. However, between 1846 and 1940 alone, about 50 million Europeans moved to the Americas. More Europeans have moved to other parts of the world since. It is therefore interesting to place in perspective just how many Africans are associated with the current perception of a tidal wave. According to data from the United Nations, the stock of Africans in those 250 million is 8.5 per cent. In Europe, that stock is slightly above 9 million people. For a population of around 1 billion that means the equivalent of 0.9 per cent of the continent’s population.

In fact, most Africans who migrate do so to other African countries. The continent has the highest intra-continent migration levels in the entire world. Human mobility, despite the many limitations that impede regional integration, is progressing well in Africa. In the light of new demographic shifts, young Africans communicate, have better access to transport and feel less of a sense of territorial rigidity then their parents. This is a universal trend. In the United Kingdom’s recent “Brexit” vote, like in many other industrialized countries where populists push for anti-migrant positions, young people voted massively for diversity and integration. Unfortunately in those countries older people have been convinced that their lifestyles are under threat by migrants. Any specialist or well-informed citizen knows the opposite is true.

Let me focus first on why people leave Africa, before turning to an assessment of the benefits of migration.

Every successful experience of industrialization has provoked movements of population. Mostly in the direction of the new production centres, but not always. Many factors influence human behaviour and a sociological context can determine parts of the population looking for exchange and interaction beyond their borders.

China has produced close to 10 million migrants in the recent economic boom period. According to the 9^th July edition of The Economist, “the extraordinary outflow of people from China is one of the most striking trends of recent decades”. They have left for a variety of reasons, like others did before them. Like Africans will certainly continue to do, despite high growth. Indians moving to the United Arab Emirates are no different. Mexicans go the United States of America, Indonesians to Australia, also despite high growth. Why would Africa be any different?

Not all seek migration due to ambition alone. Many are compelled to leave because they are in a situation of desperation. Conflicts provoking heavy casualties have risen significantly in the last six years on the continent. They are mostly associated with terrorism. Attacks by radical religious movements have increased 300 per cent since 2009. Exclusion of social groups has become the most pervasive governance problem Africa has to confront. Pastoralist societies are particularly hard hit as they struggle to adapt to fast urbanization and growth of services in the economy. UNHCR has around 14 million Africans listed as “people of concern”, the highest number since statistics started being kept.

Opportunities in Africa itself have also proven elusive for some, as they got expelled by other fellow Africans. Since independence African countries have expelled other Africans 35 times. This lack of acceptance makes the journey elsewhere, across the waters, hazardous but potentially more attractive.

There are also educated Africans, who take planes, rather than pick-ups in the desert or small rafts in the sea. One in every six university graduates finds a way out of their country of origin, making Africa’s migrants surprisingly educated. The highly skilled account for only 3 per cent of Africa’s labour force but 35 per cent of the new migrants leaving the continent. That partly explains why remittances continue to rise, last year attaining US$ 71 billion, or over 4 per cent of the continent’s combined GDP.

In general Africans do not look at migration negatively. In the collective psyche the 12 million slaves forcibly moved to the Americas, as well as the less known but also significant movements of slaves to Arabia and India, have not been forgotten. In comparison they expect current flows to be handled with the solidarity promised in the human rights proclamations. Given that the current number of African migrants is relatively small, how to explain the growing concern, almost hysteria, around it?

World demographics are changing so fast that it is not possible to maintain the wealth distribution patterns we have become familiar with. It is difficult to demonstrate to the polity that austerity is not going to solve the twin problems of large debts and population ageing. The majority of countries with high debt have also a structural challenge of population ageing.

In about two months, on 21 September, Japan will hold its “Respect for the Aged Day”, when over 30,000 citizens will be applauded for their 100^th birthday. They will join a further 31,000 centenarians fêted before them. The acceleration of the age curve is so dramatic in Japan that by 2025 health-care spending will rise 70 per cent, home nursing by 160 per cent, pensions by 40 per cent. Currently one in every four Japanese is over 65. The labour force – despite the increase in the age of retirement – will diminish in the next 40 years to the levels of 1950. However, a bigger challenge looms on the horizon: the national debt is already 240 per cent of GDP.

Country after country in Europe is confronted with a similar deficit of labour, and therefore of potential contributors to social security and consumption. In Europe the average debt to GDP ratio is way above 100 per cent. This amount of debt confronts a population that will have an excess of deaths in relation to births of 63 million between now and 2050. Even if the net projection of migrants going to Europe is maintained at 31 million during the said period, the population will still shrink by 32 million. As in Japan, a quarter of the population is already over 65. In 2050, if trends are maintained, the number of people over 65 years will be precisely 65 per cent. Who believes austerity on its own will diminish with current crisis?

In the Republic of Korea, the most robotized society in the world, the demonstration that robots will not resolve ageing has sunk in. The mentality of “one blood” is giving way to the embrace of migration. After all, robots do not contribute to social security. Jasmine Lee, born in the Philippines, is the first non-ethnic Korean member of parliament elected to the Korean National Assembly, breaking barriers that lasted for a very long time. China will also have to deal with the challenge of an ageing population. China’s wealth per capita is equivalent of that of Japan in the early 1970s, yet its labour force is already declining.

In contrast to many of their partners, Africa and India will be the repository of youth. The Malthusian pessimists have to look into the future with the characteristics it is likely to have, not the ones they are familiar with today. The demographic boom in Africa should be seen as part of its potential. African leaders should, nevertheless, be warned that the faith of Africans will depend on investments on human capital. There is no promised land anywhere without work and strategy.

To say international migration is to say cross-border connections: the ties linking sending and receiving countries are a significant aspect of the migration experience, appearing during present as well as past eras of migration. Once called “the uprooted”, migrants are now often called “transnationals”. This sensitivity is a result of studies underscoring the ways in which international migration cuts across national borders to produce a range of dynamic cross-border connections. No walls being erected in many parts of the world will deter such a trend.

Improvements in literacy rates, transport, ICT and public infrastructure in the last century have significantly influenced migration and transnational social connectivity and vice-versa.

Remittances sent by migrants to developing countries are large (second largest source of development finance after foreign direct investment); rising (increase of almost 100 per cent between 1999 and 2004), stable (with less volatility than capital market flows or development assistance), and do not require interest or capital payments. However, remittances alone cannot remove the structural constraints to economic growth.

A more hopeful view sees migrants serving as bridges or connectors, providing access to markets, sources of investment and expertise, while also helping to shape public debate, articulate reform plans and help implement reforms and new projects. The model of the migrants that would lose the links with their original identity is being replaced by the new reality of individuals aggregating new identities to their original ones. Migrants are acquiring cosmopolitan competences. They live in the era of Skype, Viber and WhatsApp.

The overwhelming majority of the global population get their citizenship by virtue of having been born in one particular place. There is no doubt that, in today’s unequal world, having one particular citizenship offers privileges and opportunities for some that are denied to others. Gaining privilege with such a strange arbitrary criteria runs against the practice in almost any other form of organized social life. There are many examples of legislation being implemented across the world to ensure equal opportunity. Are birthrights a sort of entitlement like inheritance, or rather a lottery?

From the arguments above, one can see that migration seems to be boxed in a category that does not respond to logic, rights, or even decency. There is a need to get out of this conundrum.

Should African institutions lead the way? Can Africa lead the way?

*Based on my speech at the 27^th session of the Executive Council of the African Union held in Kigali on 13 July 2016

Africa’s Blue Economy: An opportunity not to be missed*

Minilik.Demissie — Mon, 20 Jun 2016 06:24:05 +0000

20 June 2016

Africa's "Blue world" is made of vast lakes and rivers and an extensive ocean resource base. Thirty-eight of the fifty-four African States are coastal States. More than 90 percent of Africa’s imports and exports are conducted by sea and some of the most strategic gateways for international trade are in Africa, underscoring the geopolitical importance of the region. Maritime zones under Africa’s jurisdiction total about 13 million square kilometres including territorial seas and approximately 6.5 million square kilometres of the continental shelf. Mauritius with its 1850 square kilometres is one of the smallest countries in Africa and in the world. However, with its territorial waters, it becomes a country with 1.9 million square kilometres, the size of South Africa. Therefore, we have another Africa under the sea. Quite rightly, the African Union call the Blue Economy the "New Frontier of African Renaissance".

Africa’s aquatic and marine spaces are an increasingly common topic of political discourse; its natural resources have remained largely underexploited but are now being recognized for their potential contribution to inclusive and sustainable development. This "Blue world" is more than just an economic space— it is part of Africa’s rich geographical, social, and cultural canvas. Through a better understanding of the enormous opportunities emerging from investing and reinvesting in Africa’s aquatic and marine spaces, the balance can be tipped away from illegal harvesting, degradation, and depletion to a sustainable Blue development paradigm, serving Africa today and tomorrow. If fully exploited and well managed, Africa’s Blue Economy can constitute a major source of wealth and catapult the continent’s fortunes.

Africa’s economies continue to grow at remarkable rates, including through the exploitation of the rich endowment of land-based natural resources and commodity exports. Converting this growth into quality growth, through the generation of inclusive wealth, within environmental limits and respecting the highest social considerations, requires bold new thinking. It also involves the creation of jobs for a population on the rise. The Blue Economy offers that opportunity. For example, the International Energy Agency estimates that ocean renewable energy has a power potential sufficient to provide up to 400% of global current energy demand. Other estimates indicate that in 2010 the total annual economic value of maritime related activities reached 1.5 trillion euro. It is forecasted that by 2020, this figure will reach 2.5 trillion euro per year. Surely, Africa needs holistic and coherent strategies to harness this potential.

All water bodies, including lakes, rivers, and underground water, in addition to seas and the coast are unique resources, yet neglected and often forgotten. The largest sectors of the current African aquatic and ocean-based economy are fisheries, aquaculture, tourism, transport, ports, coastal mining, and energy. Additionally, the Blue Economy approach emphasizes interconnectedness with other sectors, is responsive to emerging and frontier sectors, and supports important social considerations, such as gender mainstreaming, food and water security, poverty alleviation, wealth retention, and jobs creation. The Blue Economy can play a major role in Africa’s structural transformation.

The approach advocated in ECA’s new Policy Handbook* is premised in the sustainable use, management and conservation of aquatic and marine ecosystems and associated resources. It builds on principles of equity, low carbon footprint, resource efficiency, social inclusion and broad-based development, with the jobs agenda at the centre of it all. It is anchored on strong regional cooperation and integration, considers structural transformation as an imperative for Africa's development and advocates for a complete departure from enclave development models. Instead, through better linkages to other sectors of the economy, it situates the aquatic and marine economies as part of integrated ecosystem services based on the harvesting of living and non-living resources, benefitting both costal, island states and landlocked countries.

Biotic resources allow Africa to expand its fishing, aquaculture, mariculture sectors and foster the emergency of vibrant pharmaceutical, chemical and cosmetics industries. The extraction of mineral resources and the generation of new energy resources provide the feedstock to resource-based industrialisation and places Africa at the centre of global trade in value-added products, no longer a supplier of unprocessed raw materials. Central to this agenda, is the need to modernise Africa's maritime transport and logistics services, its port and railway infrastructure, improve its reliability and efficiency with the view to seamless link the continent's economies to national, regional and global value chains as well facilitate tourism and recreation activities, just to name a few.

Africa has salutary examples of maritime, riparian and river-based cooperation and dispute settlement. This includes examples of maritime and transnational aquatic boundary delimitation and demarcation. A collaborative approach for the development of the Blue Economy will create the foundation for the formulation of shared visions for transformation. The Blue Economy development approach is an integral part of African Agenda 2063. Building on the experience with implementing Green Economy principles for a transition to low-carbon development, we are seeing an increasing number of African member States formulating Blue Economy strategies to diversify their economic base and catalyze socioeconomic transformation.

*Based on the foreword of Africa’s blue Economy; a policy handbook . An abridged version of this post has been published by the OECD Development Centre: https://oecd-development-matters.org/2016/06/07/africas-blue-economy-an-opportunity-not-to-be-missed/

We Cannot Afford to Fail on the Continental Free Trade Area

Minilik.Demissie — Tue, 24 May 2016 05:51:06 +0000

24 May 2016

The launch of the Continental Free Trade Area (CFTA) negotiations by the AU leaders in June 2015 in Johannesburgwas a milestone. Once in place, the free trade area will cover more than a billion people with a continental GDP of over US$ 3 trillion.

Successful implementation of the CFTA will enable members to realize their potential to expand and accelerate the dynamism of intra-African trade, including the declared objective of increasing trade by 50 percent among African countries, by 2022. Intra-African trade today averages 16 percent, compared to 70 percent for Europe, 50 percent for Asia or 21 percent for Latin America.

It is true that the composition of intra-African trade is much more diversified than extra-African trade, with manufacturing representing 67 percent of exports compared to 32 percent for exports to Europe, 18 percent to the United States and 14 percent to China. Boosting intra-African trade is therefore critical to ensuring structural transformation, productive jobs and inclusive growth for Africa.

Harnessing this potential has been constrained by current tariff structures which make it cheaper for African countries to export to an external trading partner than to an African counterpart. Tariff protection within Africa averages about 8.7 percent but only 2.5 percent to the rest of the world. This problem will be exacerbated with the move to reciprocal but asymmetrical trade agreements, as implied by the full implementation of the recently concluded Economic Partnership Agreements (EPAs). If the EPAs are fully implemented before the CFTA, it will continue to be relatively more attractive for African countries to export to Europe than to one another reinforcing a trade regime with Europe that has hardly changed in the six decades following independence.

In addition, according to economic modelling undertaken at ECA, the Mega Regional Trade Agreements (MRTAs) - i.e. the Trans-Pacific Partnership of the Pacific Rim countries, the Regional Comprehensive Economic Partnership of Asian countries and the Trans-Atlantic Trade and Investment Partnership between Europe and the United States - will potentially result in loss of market share by African countries through preference erosion and competitive pressures. The expected decline in Africa’s trade in these regions will only be mitigated if Africa implements its own MRTA in the form of the CFTA . Let us be realistic: it has become clear that the global trade reforms through the WTO’s Doha Round are not forthcoming. This is why Africa needs to make its own move and it needs to do it now. So the question is: are we moving fast enough?

The indicative date for the finalization of the CFTA is October 2017. Although much progress has been made to prepare the ground for negotiations, there is need for a well thought-out strategy for the management of the CFTA negotiations if this deadline is to be met. Taking into account that 54 countries are participating in the negotiations, each with differing capacities and interests, this is not easy. The expected scope of the agreements is wide and covers trade in goods, trade in services, investment, intellectual property rights and competition policy. It is a high ambition. No less than the goal is the creation of a single pan-African trade regime out of today’s multiple and overlapping regimes, looking at the eventual formation of an Africa-wide customs union.

If Africa is to succeed, indeed it needs a strategy. What form should this strategy take?

First, there is a need for a draft template agreement to be used as the basis for negotiations. This would help to save an enormous amount of time since the member states would not be required to prepare and exchange draft negotiating texts but rather work from a pan-African template that embodies the aspirations of the Abuja Treaty. Given the current significant differences in the technical negotiating capacity, a draft template agreement would level the playing field by ensuring that each country is given the opportunity to study and review such template agreement and formulate better-informed negotiating positions. It will help build consensus and achieve a level of ambition greater than what has been observed recently.

Second, the draft template agreement should include the eight main landing zones that can be feasibly achieved by October 2017: (i) agreement on trade in goods, which is required before any free trade area can technically exist; (ii) a framework agreement on trade in services, given the importance of services to trade in goods and its growing weight in continental GDP, with a built-in agenda for progressive liberalization of the various service sectors; (iii) special agreement on agriculture (iv) an industrial pillar to ensure that special provisions are built into the agreement, consistent with the imperative of industrial development; (v) front-loaded rules for a common investment area to complement an Africa-wide free trade area, prioritize forward and backward linkages spanning both agriculture and industry, and avoid the race to the bottom as African countries compete to offer investment incentives; (vi) trade remedies and dispute settlement arrangements including a frontloaded competition policy framework to regulate unfair trade practices (vii) provisions on trade facilitation and customs cooperation to improve border efficiency; and (viii) institutional arrangements for implementation, which will require creation of a CFTA Secretariat to oversee the implementation of the agreement.

This is doable. Bringing the CFTA into effect will not be easy. But utilizing a draft template agreement in the negotiations will make success more likely and achieved more quickly. However, to ensure political credibility, such an approach requires high level institutional endorsement.

A political decision is required calling for the CFTA negotiations to be prioritized over all other intra-African and extra-African trade negotiations. This would ease capacity and financial pressures, but more importantly ensure that the CFTA provides a pan-African outcome with a single economic space and common trade and investment rules.

Africa is running out of time. If the first flagship programme of Agenda 2063 is set to fail then we will be in trouble.

Addressing corruption in Africa with the right focus*

eskinder.tsegaye — Tue, 26 Apr 2016 08:15:04 +0000

26 April 2016

Governance and corruption are controversial issues of great significance for sustainable development. Fostering structural transformation requires more than a national policy and strategy in order to operate effectively in an increasingly globalized world. Globalization continues to alter countries’ growth trajectories, with grave implications for the poor by affecting their access to assets and markets. African countries need to translate opportunities offered by globalization into inclusive growth, increased poverty reduction and sustainable development. However, integration into global markets has some risks as countries become more susceptible to global trends, including corrupt practices by multinational corporations and other vested external interests.

A number of indicators have been developed to assess levels of corruption in Africa. Some of these measurements, such as the Corruption Perceptions Index, World Governance Indicators, Ibrahim Index of African Governance and Afrobarometer, are influential because they have shaped foreign policy, investment decisions and aid allocation, as well as country risk analysis on the continent. African countries are being “named and shamed”. However, given the limitations of the measurement methodologies no single indicator of corruption should be used. There is a need to address the corruption problem in Africa in its totality, including asset repatriation and money laundering. Indeed, it should be made clear that those who steal funds and assets and the receivers of such goods are equally guilty of fuelling corruption on the continent.

The current tendency in measuring corruption on the continent is to focus on individuals’ perception of the extent of corruption. Although addressing individual and heterogeneous experiences is important, a focus on individuals alone overlooks a fundamental cause of corruption for many people: the deliberate exclusion, current or historical, of particular social groups from effective participation in society. It is thus important to address these power-related features of deprivation by empowering the poorest members of society, including women, as a means of combating corruption and weak economic governance. There is unanimous agreement that this process is better achieved through democratization and civic engagement.

Delivering social equity as a means of combating corruption demands governance reforms that empower poor and marginalized groups and give them a voice, and that enhance accountability to increase service providers’ incentives to respond to the needs of the poor. Responsible and accountable service provision, in turn, enhances government revenue thus expanding fiscal space, as this spurs citizens’ willingness to pay taxes. Investing in the social capital of the most vulnerable is also paramount. Another core pillar of the inclusion effort is guaranteeing access to and protection of property rights. However, providing property rights is a complex issue given that they are derived from many sources (Government, customs and religious laws), and the history of access-rights is usually context-specific. Strategies for legal and other reforms need to take these complexities into account to help provide for marginalized groups, combat corruption and expand access to essential services.

It is important for Africa to focus on the importance of measuring corruption and understating its international dimensions. We need to challenge the traditionally narrow notion of corruption as the “abuse of public office for private gain”. This definition places too much emphasis on public office and on the ostensible legality of the act, neglecting the corrupt tendencies prevalent in the private and non-State sectors. Policymakers must understand the importance and implications of viewing corruption as a broader phenomenon where private agents share significant responsibility, and where many unethical acts, which can be regarded as corrupt, may not necessarily be illegal or located within the public sector. For example, many powerful domestic and foreign private firms engage in undue influence to shape State policies, laws and regulations for their own benefit. Sometimes, these private entities make election campaign contributions, which may be legal but unduly undermine democracy. Moreover, favouritism of particular firms in the awarding of public procurement bids and contracts is widespread in Africa. Equally, many corrupt practices taking place on the continent are generated and abetted by non-African players.

It is arguable that the greatest challenge to Africa’s structural transformation agenda is not corruption of the sort that has come to light in corporate and public sector scandals - issues of fraud and bribes can be effectively tackled with improved supervision and more stringent enforcement of governance rules. In general, fundamental economic governance problems are to be found on an entirely different level – the inability of management in both the public and private sectors to act effectively and enhance programme delivery and optimize results. Furthermore, effective regulatory frameworks should strike a balance between fostering private sector development and enhancing social transformation anchored on better service delivery. In this regard, a wider approach to the structural transformation agenda needs to be adopted by focusing on actions that not only tackle corruption but also enhance wider economic governance.

In this context, the fourth edition of the African Governance Report published by ECA implores all stakeholders to rethink corruption measurements in general, and in the African context in particular. As the report shows, there is a strong need for such a rethink. For example, current approaches for measuring corruption completely ignore the international dimension of corruption in Africa. There is ample evidence that the operations of foreign players on the continent are causing significant illicit financial outflows. Such omissions present serious gaps in current measurements.

In my view, African countries and partners should move away from pure perception-based measures of corruption and focus on alternative approaches, which are fact-based and built on more objective quantitative criteria and include the international dimensions of corruption. The present report makes the case for such a shift. In the interim, while possible quantitative criteria continue to be explored, it is necessary to ensure that perception-based methods are better anchored on more transparent and representative surveys. These measurements should also be complemented, where possible, with quantitative country/case-specific indicators to produce more sophisticated and useful assessments. Instead of “naming and shaming” the culprits on the basis of some perceived levels, it is necessary to deeply reflect on the problems of measuring corruption in Africa, with special attention to the roles of international players. It is also vital that African policymakers and partners focus on the big economic governance issues critical for the continent’s structural transformation and sustainable development in order to effectively address the problems of corruption.

*Preface for the new Economic Commission for Africa Report dedicated to Corruption (http://www.uneca.org/sites/default/files/PublicationFiles/agr4_eng_fin_web_11april.pdf )

Regional integration and monetary unions in Africa

Anonymous — Mon, 21 Mar 2016 07:33:58 +0000

21 March 2016

With a land mass of over 30 million square kilometers, Africa is as big as India, China, the US and most of Europe combined. Betrayed by a Mercator map projection, the common view of the size of the continent has been diminished, pretty much the same way as other characteristics of the continent.

When we realize the Democratic Republic of Congo (DRC) alone is about half the size of the European Union, we could even pretend that at least that much territory is already integrated within the continent. However, the reality is that even in one single country, like the DRC, national integration is a challenge. Just ten years ago DRC had a public budget smaller than Brussels. Basically, the point is: Africa has a long way to go!

The reality of integration in every region and corner of the planet is a tale of many challenges. Africa is no different. The European Union (EU), considered the most mature integration achievement, has itself started to demonstrate serious difficulties and major shortcomings, particularly relating to the Eurozone.

Africa has a longer history of monetary unions than Europe, but the large size of the European Monetary Union (EMU) and the challenges it has faced since the 2008-2009 financial crisis, provides important lessons for both existing and proposed monetary unions in Africa. Europe worked hard to consolidate its single market and achieve a high degree of trade integration before the establishment of the Euro. The Eurozone countries built over time an impressive architecture of processes, institutions and regulations.

One of the key lessons for Africa from the EU’s experience is that the institutional environment has to be conducive to the fostering of regional trade. Another lesson for Africa is the importance of stable macroeconomic policies. When there are wide differences in the degree of fiscal discipline across member countries, that reality can create challenges for the survival and stability of any union. The Eurozone experience also underscores the need for countries that are about to participate in a monetary union to have a credible and feasible mechanism for fiscal transfers, in order to enable them to respond and adjust to asymmetric shocks. In the absence of such a mechanism, any monetary union will be susceptible to enormous pressure when its members are hit by such asymmetric shocks. There are, however, concerns that the adoption of the stringent convergence criteria will limit policy space to address current and emerging development challenges.

The importance of monetary, fiscal and financial policy harmonization, within the context of economic integration, cannot be overemphasized. Monetary union is defined in the literature as involving two components: “exchange rate union, that is, an area within which exchange rates bear a permanently fixed relationship to each other…” and “convertibility – the permanent absence of all exchange controls, whether for current or capital transactions within an area”.

Nobel Prize Laureate in Economics, Professor Robert Mundell, posited that the degree of factor mobility within a currency union is of utmost importance. Movement of labor and capital goods across borders is not restricted so that it is easy for factors to move to areas where they can earn maximum remuneration for the services rendered. An essential requirement here is the presence of at least, an internally convertible currency within the union.

Regional Economic Communities in Africa aim to establish monetary unions as part of their broader integration agenda. Africa has a long history of some countries sharing single currencies. For example, the West African Economic and Monetary Union (UEMOA) has 8 countries using the CFA franc, previously pegged to the French franc and now to the euro. There is also the Economic and Monetary Community of Central Africa (CEMAC) with an additional 6 countries using the CFA franc. Lesotho, Namibia and Swaziland are pegged at par to the South African Rand, which effectively means that they share the same monetary policy. Countries that are part of these three blocks represent a significant portion of Africa’s GDP.

In fact, one of the main objectives of pursuing monetary unions in Africa is to boost regional integration, particularly intraregional trade and investments. Intra-African trade is about 16 per cent on average compared to 21 per cent for Latin America and the Caribbean, 50 per cent for Asia, and 70 per cent for Europe.

Administering 54 sovereign states with an array of national policies and inefficient government apparatus constitutes a massive resource-draining overhead cost on Africa’s fragile, undiversified primary production based economies. An assessment of progress towards macroeconomic convergence in Economic Communities in Africa show that, while some progress is being made, it is generally below the targets set in their monetary integration programmes.

If Africa were a business the management costs of this type of structure would be uncompetitive. The cost of governing such a fragmented production structure is simply too high for Africa to afford or sustain. Thus, the contribution of regional integration to the promotion of intra-group trade, growth, development and social and political cohesion is unquestionable. The stark conclusion that can be drawn from these facts is that Africa must integrate (or, in business parlance, rationalize and merge) in order to reduce its overhead costs.

The debate about integration, however, has been mostly centered on the political dimensions and the paramount pan-African ideal. Africa has broken the cycle of hopelessness and has hewn for itself an optimistic future through rapid and strong economic growth since the start of the century. Time has come to move to a more technical debate and focus, partly to give credence to such noble political ideals, but also because the speed of global transformation will not await, much more, for late comers. Accelerating the pace of and achieving structural transformation remains the greater challenge for the future. In fact, the majority of African countries continue to struggle to diversify their narrow-based economies.

Addressing these challenges will require due attention to an appropriate macroeconomic policy framework underpinned by a long-term development strategy that facilitates transformation of economic and social structures, and ensures a positive feedback loop in the investment-growth nexus. Such a macroeconomic policy framework for structural transformation should encompass five main components: i) scaling up public investment and public goods provision; ii) maintaining macro stability to attract and sustain private investment; iii) coordinating investment and other development policies; iv) mobilizing resources and reducing aid dependence over time; v) securing fiscal sustainability by establishing fiscal legitimacy.

These key elements of transformation are not optional when discussing monetary unions in the African context. Regional Economic Communities better pay attention, otherwise they risk not being taken seriously about such ambitious goals.

Based on my speech at the Africa Training Institute of the International Monetary Fund, delivered on 8 March 2016 in Mauritius.

They don’t believe in the future!

Minilik.Demissie — Thu, 25 Feb 2016 13:13:25 +0000

25 February 2016

The domino effect of five central banks - Denmark, Switzerland, the European Central bank, the bank of Japan and more recently Sweden, slashing interest rates to sub – zero levels has certainly given many the chills. Viewed as a desperate move to stimulate growth by rewarding spending and penalizing savings – it is in fact more related to the unsustainability of public expenditure modelled for a demographic curve that is no longer there. An ageing population whose workforce is weak and has low productivity is coming to surface. The world seems to be gripped with the psychological fear of another looming global debt crisis. This is hardly surprising. Analysts and political leaders refuse to discuss population trends because the reality is very difficult to reconcile with populism and short term expediency.

In the last decade growth seem to be shifting to emerging economies, but all of the sudden the BRICS, with one exception, India, got engulfed in the same patterns as those they rivalled. It is no coincidence they too, with precisely the Indian exception are facing a diminishing of their labour force in the near future.

Yet in this whirlwind, growth will have to come from somewhere. Africa’s growth has been driven by investors seeking high returns and opportunities rooted in a number of mega trends. These include a sizeable number of consumers, that will be almost as large as the Americas and Europe population combined by 2025; a rising middle class coupled with a rapid urbanization with eager consumers expected to spend about USD1 trillion by 2020; and a young population that will constitute over a quarter of the world’s labour force by 2050.

In addition to reforms, Africa’s financial sector has also matured wetting the appetite for sovereign bonds – now at the center of the continent’s debt sustainability discussion. This trend in particular has created the buzz about another debt crisis looming in Africa. When we talk of debt sustainability, the agreed definition is whether a country can meet its current and future debt service obligations in full, without recourse to debt relief, rescheduling or accumulation of arrears.

It is important to give some context with regards to Africa’s past indebtedness. Contrary to common perception, Africa's past over-indebtedness was not solely attributable to the continent’s poor governance, corruption or conflict, as most would have you believe. Other contributing factors include cold war geopolitics; relatively poor fiscal policies and negative real interest rates in industrial countries, which in turn encouraged developing countries to go on a borrowing spree; as well as easy credit access, particularly to oil-exporting countries, that in hindsight seemed to be helping industrial countries adjust to the two oil-shocks of the 1970’s. A long drawn global recession caused commodity markets and prices to collapse. Volatile exchange rate movements saw Africa's debts appreciated against the US dollar. Adding to this potent cocktail, protectionist policies in the world's markets stood in Africa’s way to escape the debt trap. With onerous debt service burdens, a vicious cycle began: African countries taking on new loans to repay old ones. More was actually being spent on servicing debt than any other expenditure or investment category. By 2012, African countries were still spending about 10 percent of their export earnings on servicing external debt, an improvement from the 40 per cent plus of the 1990s.

Interestingly, the continent’s total external debt as a percentage of GDP has actually been declining in Africa since the Monterrey consensus of 2002 that launched debt relief through the Heavily Indebted Poor Country (HIPC) scheme, and the Multilateral Debt Relief Initiative (MDRI). Together they helped 35 African countries cancel USD100 billion of external debt.

Africa's total foreign debt has been higher than 30 percent of GDP since 2010 and it was projected to have risen to 37.1 percent by the end of 2015. However, net foreign debt as a share of GDP is only 1 per cent, having been negative since 2006 because of Africa’s international reserves¹. For example, net foreign debt as a share of GDP in Algeria has averaged -82.3 percent since 2010.

With regards toAfrica’s total public debt-to-GDP, figures have hovered above 30 percent of GDP since 2006 and with gradual increases taking place between 2010 and 2014. Even then, it is still lower than recorded in previous decades standing at 38 percent as of 2014² . This debt level is also comparable to other developing countries and is well below that of advanced economies. For example, the total debt for OECD countries was nearly 80 percent of the OECD GDP in 2008 and was expected to grow to 111.2 percent in 2015³. The champion of debt is Japan with GDP/debt ratio of 230 percent.

So why is the talk of debt pressure coming from?

Prior to 2009 sovereign bonds issued by African countries were negligible. The current stock is over USD18 billion. This amount actually is not reflective of incompetent governments building up unsustainable levels of debt but rather reasonable borrowers taking advantage of low interest rates to finance growth. The bad move was to not take into account the volatility of the exchange rates and currency markets. African governments are expected to experience up to USD10.8 billion in losses or the equivalent to 1.1 percent of the region’s GDP on sovereign bonds that they issued in 2013 and 2014, due largely to exchange rate risks.

Changes in macroeconomic fundamentals, such as a collapse in commodity prices, can also affect sovereign debt significantly⁴. Sovereign debt is driven by advanced and powerful economies asynchronous monetary policies. Defaulting is always risky – while governments may forgive debt, private investors certainly don’t; conditions are more stringent to meet maturity deadlines. There is no coherent mechanism to govern any future sovereign debt crises. Creditor specific mechanisms used to facilitate past debt restructurings are no longer available. Although a sovereign debt restructuring mechanism was proposed by the IMF more than a decade ago, there is still no international agreement on the topic to date. There is a general consensus that the existing rules are too creditor-friendly, but that a push for an international agreement that is too borrower friendly might not be the best way forward. Any global agreement should therefore strike the right balance⁵.

The bottom line is that debt will be exacerbated in countries with weak fiscal discipline and for those who over borrow and pay little attention to repayments. Individual governments must build debt management capacity and be held accountable for the effective use of borrowed funds. This includesassessing any expansion in borrowing within the context of a comprehensive medium-term strategy for sovereign debt management.

Finally there is need for flexibility in placing debt ceilings and assessing debt. African countries should not be over-constrained or unduly deprived. The issue of debt sustainability will essentially depend on a comprehensive treatment of all components of debt in a debt restructuring, and the provision of clear mechanism to engage all stakeholders to build up consensus on how to close the gaps in financial architecture. This is going to be difficult for rich countries to accept. It requires facing the real structural problems they have through ageing.

If the answer is to pay the banks to keep the money, OECD countries will show they don’t believe in the future. Africa does not have that luxury.

This article was published in French online in NotreAfrik magazine of 23 February 2016

http://www.notreafrik.com/tribune-ils-ne-croient-pas-en-lavenir/

1 Economic Commission for Africa (2015). Industrializing through trade. Addis Ababa, UNECA.

2 Data set from EIU, 2016

3 Global finance magazine-
https://www.gfmag.com/global-data/economic-data/public-debt-percentage-gdp?page=2

4 Hilscher, J. and Y. Nosbusch (2010). Determinants of Sovereign Risk: Macroeconomic Fundamentals andthe Pricing of Sovereign Debt, London School of Economics, UK.

5 Ibid

Conflict grows out of inequality and exclusion

Minilik.Demissie — Mon, 01 Feb 2016 06:26:29 +0000

1 February 2016

CONFLICT GROWS OUT OF INEQUALITY AND EXCLUSION[1]

For a while Africans enthusiasm with the good economic performance of the continent has had a contagious lazy effect in many minds. It was as if the road to a new continental status was a given, even though we were all too busy approving many frameworks and strategies, centered on the need for real structural transformation. Unfortunately the time for a wake-up call is passed. A combination of renewed conflict, drop on commodities demand and prices, including oil, high currency volatility, rising interest rates, choking of key economic locomotives and another devastating visit of our hated El Niño, are dominating yet again the African story line. Let us get the story straight.

The fundamentals for Africa’s economic prospects are there and intact. Africa continues to register the highest growth within a global slump, our international reserves took a beaten, but this is to be put in contrast with still internationally low debt levels, public deficits are still under control, and steady increase in investments from many , although not all, sources. Recent Summits with India and China, the two demographically equivalents, demonstrated trust in the future. Infra-structure projects have mostly not been affected by the downturn, from a new Suez Canal, to the largest ever dam in Ethiopia or world size solar farms in three countries. As far as the economy is concerned the news are actually better than most could afford. So, where are then the key factors that shift the mainstream narrative back to the past?

Squarely it is a combination of two factors: fragility perception and lack of deeper structural transformation, seen as the need to combine higher agricultural productivity, adding value to natural resources, modernized services associated with urban and youth bulges, powered by strong industrialization. African Agenda 2063 approved by the continent’s leaders is all about that.

If Africa is going to sustain a different narrative it has to be based in real changes. It is therefore opportune to focus on the part of the continental narrative less strategically assessed by Africans themselves: the causes of conflicts.

Between the early hours of April 11^th and the late afternoon of May 14^th 1994, fifty thousand Rwandese where killed with machetes by their neighbors in the Nyamata Hill. This was a very small part of what is now considered the largest genocide since World War II. A genocide that took the lives of hundreds of thousands of Rwandese. This shocking reality requires for us to understand why was this possible? One participant in the brutal killings said: “Rule number one was to kill. Rule number two, didn’t exist.”[2]

Is it possible to recognize amongst those we call terrorists, be it Al Shabbab, Boko Haram or those who perpetrate the carnages in Central African Republic or South Sudan, a similar rule book? Killing without remorse? Doing it like a job, better than planting or surviving in the periphery, and then have a good drink and laugh at the panic provoked and media attention. How can this happen? How can this continue to happen?

Huge differences in the distribution and exercise of political and economic power result in violent conflicts, in absence or failure of a political mechanism to address inequality. Inequality between groups rather than individuals is probably the foremost cause of conflict in Africa. It exists on three mutually reinforcing levels: economic, social and political. Relatively deprived groups seek or are persuaded by their leaders to seek redress. Privileged groups may also be motivated to fight to protect privileges. Horizontal inequalities are most likely to lead to conflict where they are substantial, consistent, and increasing over time. Exclusion, the extreme manifestation of inequality, is a major factor igniting conflicts. Of particular attention is the exclusion of youth. Uneducated and unemployed youth is a common characteristic to countries experienced conflicts. This marginalized and excluded fraction of the population has been more prominent in the conflict as combatants and least visible during peace.

Very often the richest regions in minerals, oil and gas and which contribute most of national revenue are the poorest in terms of social development and general wellbeing. The collapse of State institutions translated by its inability and ineffectiveness to provide basic services or security has proven to be an important trigger to conflicts. Social stability is based on a hypothetical social contract between citizens and government. People accept state authority so long as the state delivers services and provides reasonable economic conditions. With economic stagnation, decline, or worsening state services, the social contract breaks down, and violence is likely to occur. The collapse of infrastructure completes the erosion of state authority. The combination of a breakdown of institutions and physical infrastructure coupled with the use of ethnic violence creates the conditions in which violence becomes self-sustaining. Evidence suggests a higher incidence of conflict among countries with low per capita incomes, life expectancy, and meagre economic opportunities.

Of the 54 African states only 8 have not experienced armed or violent conflict since independence.

War confers benefits on individuals as well as costs which can motivate people to fight. Young uneducated men, in particular, may gain employment as soldiers. War also generates opportunities to loot, profiteer from shortages and from aid, trade arms, and carry out illicit production and trade in oil, drugs, diamonds, timber, and other commodities. Where alternative opportunities are few, because of low incomes and poor employment, and the possibilities of enrichment by war are considerable, the incidence and duration of wars are likely to be greater. This “greed hypothesis” has its base in rational choice economics. Very often, political leaders deliberately “rework historical memories” to engender or strengthen cultural identities in the competition for power and resources and justify the recourse to violence because of economic interest.

Environmental stress can be a serious catalyst for violence too, especially when people seek alternatives to desperate situations, while resource riches give strong motivation to particular groups to gain control over such resources. This reality is maximized by illegal trade and financial transactions that are depriving the continent of over fifty to sixty billion USD every year.

Results show that the economic performance of conflict areas is on average 10% below that of conflict-free areas in most GDP performance categories. A study estimated a loss of 284 billion USD (in constant 2000 rates) for 23 African countries, from 1990 to 2005. This figure represented then an average annual loss of 15% of their GDP. Regression analysis indicates a loss of about 2.2% GDP growth due to conflict. The interrelated nature of African economies also means that the costs of war within a sub-region generally result in economic costs for neighboring countries. These include production losses through loss of opportunities deriving from migration, trade losses, increased costs of security and policing and the costs of supporting refugees.

In Niger’s real GDP growth reduced to 3.6% in 2013 after expanding by 11.1% in 2012. In Mali, the series of events triggered by the 2012 outbreak of conflict and insecurity led to falls in government resources and expenditures by at least 30%. In DRC internal investment as a percentage of GDP dropped from 31.6% in 1997 to 17.7% in 1998; and reached its lowest level of 2% in 2000. Libya oil output has shrunk to less than 400,000 barrels per day (bpd), from about 1.7 million bpd before the outbreak of conflict. As a result, GDP contracted by an estimated 24% in 2014. The government accounts are expected to post a deficit of about 80 % of GDP in 2015, with the current account deficit exceeding 60% of GDP.

The message is clear. African priorities either deal upfront with the causes of conflict, or everybody will pay the price for the fragility perception. It is true that countries in Europe, Asia or the Americas were stabilized after prolonged wars that were fomented by the same ingredients of exclusion. They evolved to create better institutions, regulated markets and stabilized security. But it is also true that when it happened there, there was no universal telephony coverage or global media. A continent with more conflicts and affected people than Africa right now, continues to be associated with progress and change. I am talking about Asia. If Africa wants to follow suit there is a need for boldness, a common security framework and squarely accept the challenges of exclusion and managing diversity. That is the only way on deals with die hard perceptions.

Rule number one -to kill- with no rule number two, is still mobilizing far too many in the continent. We need Africa to focus on the “why”, and not allow this pervasive virus mentality to rotten past decade and a half achievements.

The why in fact can take inspiration from a virus’s metaphor. Any virus is basically a micro infectious agent that replicates only inside the living cells of other organisms. Viruses can infect all types of life forms. Even if they are not inside an infected cell or in the process of infecting a cell, viruses exist in the form of independent particles. Virus spread in many different ways, but they do have a pattern. It is known that virus can come from far away.

The good news is that viral infections in humans provoke an immune response that usually eliminates the infecting virus. Immune responses can also be produced by vaccines, which confer an artificially acquired immunity to the specific viral infection.

Africa either has strong immunity to deal with these terror groups viral effects, because of the strength of its institutions and capabilities, or has to develop, fast, a vaccine that will rid us of its damage. Such a vaccine could be labeled “antidote to exclusion”.

[1] Based on my speech delivered at the 26th African Union Executive Council January 25th 2016, Addis Ababa

[2] Reference to Jean Hatzfeld, Une saison de machettes, Seuil, 2003.