confidentially speaking
The Africa Confidential Blog
IMF/WORLD BANK: 'The road ahead is bumpy' - warnings on growth, debt and productivity in Africa
Patrick Smith
Finance ministers and central bank governors are heading to
Bali, Indonesia for the annual meetings of the
Bretton Woods institutions, where they will consumed by the threats of
the expanding trade war, rising public debt and ructions in the
international banking system a decade after the United States financial crisis triggered a recession in the West and a global
slowdown. This week, The Zondo commission in South
Africa has been hearing some spectacular testimony about local
businessmen and Russian nuclear contracts from
Finance Minister Nhlanhla Nene. And Nigeria's
main opposition party is to pick its candidate this weekend (6-7
October) to challenge President Muhammadu Buhari in
next year's elections.
IMF/WORLD BANK: 'The road ahead is bumpy'
– warnings on growth, debt and productivity in Africa
Africa's recovery from the commodity crash and poverty
reduction are slowing while rising indebtedness is threatening economic
stability: those are some of the alarming messages from the World Bank
and International Monetary Fund as they prepare for their annual
meetings next week (8-12 October) in Indonesia. Both organisations
concede that there have been serious problems with their data on Africa
and other developing regions and are looking for ways to measure
economic well-being, beyond the gross domestic product formula.
That said, the raw GDP data for Africa's growth path is not
promising. The latest edition of Pulse, a 120-page World Bank
analysis on economic trends in Africa, reckons growth levels have
picked up 2.7% this year from 2.3% last year but had revised down their
original projections by 0.4 percentage points.
This is because the Bank has cut its projections for growth in
Angola, Nigeria, and South Africa, the three
largest economies in the region. Pulse summed up: 'The road
ahead is bumpy'. The IMF's forecasts are a tad more bullish, reckoning
an average growth rate of 3.4% this year up from 2.8% last year. But it
adds that even if average growth levels were to hit 4% this year, this
translates into just 1% in GDP per head because of the region's high
birth-rate.
To get beyond the inadequacies of the GDP measure, the World
Bank is taking a wider view of economic expansion, based on what it
defines as four types of capital: produced (factories and
infrastructure); human (estimated total earnings of the workforce);
financial (monetary assets held overseas); natural (mineral and farming
resources). These broader measures show a still wider gap between
Africa's economic health and that of Asia.
Africa's resource-dependent economies face mixed prospects,
adds the Bank. Although demand for oil is rising, producers in Angola
and Nigeria are struggling to meet higher demand and there is little
expectation that the sluggish market for African metal producers will
pick up in the next three years.
The best news in the report is the strong growth in Côte
d'Ivoire, Kenya and Rwanda,
based on their more diversified economies, all with robust farm
production and substantial public investment programmes. But questions
are being asked about the cost of Kenya's borrowing programme, and the
value for money of the Nairobi to Mombasa railway.
Depending on how the US trade war with China and Europe plays out, its indirect effects could further suppress
demand for Africa's commodities. Alongside trade tensions between the
biggest economies, the Bank points to the risk of higher interest
rates, a strengthening dollar and a sharp fall in commodity prices as
the main external risks facing African economies.
Extreme weather – more droughts and floods – along with
ballooning budget deficits and civil conflicts are the main domestic
risks for growth according to the Bank. It also warns about the rising
costs of servicing debt. Debtors will suffer if the dollar continues to
strengthen.
To accusations that they have been slow to flag worsening debt
problems in Africa, the Fund and the Bank say they have found flaws in
some financial reporting systems. In March 2016, the IMF announced the Mozambique government had contracted over $1 billion of hidden loans and suspended
disbursements. Now, the Fund and Bank point to Zambia's
unsustainable debt burden as the next financial flashpoint in the
region.
President Edgar Lungu's government is caught
up in a similar combination of rising debt obligations and grand
corruption as well as over-priced state procurement and massive
exposure to Chinese project finance debt.
SOUTH AFRICA: Finance Minister Nene claims Zuma sacked
him for blocking $100 billion Russian atomic energy plan
What have become known as the 'state capture' hearings
in South Africa were told by Finance Minister Nhlanhla Nene on
Wednesday (3 October) that President Jacob Zuma had
fired him for blocking contracts that would have benefited the Gupta
family, including a $100 billion nuclear power deal with Russia. This
commission, tasked with investigating allegations of corrupt business
influence on the government, was set up in January under Deputy Chief
Justice Raymond Zondo but is stepping up its pace now.
President Zuma's sacking of Nene in December 2015 triggered a
financial crisis in South Africa as the rand crashed and portfolio
investors withdrew. Zuma's chosen replacement for Nene, Des
van Rooyen, was seen as weak and inexperienced, and after
pressure from a delegation of top officials Zuma sacked Van Rooyen,
appointing Pravin Gordhan, who shared Nene's doubts
about the Russia deal, in his place.
Nene told the Zondo Commission that Zuma, along with Energy
Minister Tina Joemat-Pettersson and Foreign Minister Maite
Nkoana-Mashabane, had tried to pressure him to sign a letter
of guarantee for the atomic project while they were attending a summit
of the BRICS (Brazil, Russia, India,
China and South Africa) in July 2015 in Ufa, Russia. Zuma had wanted to
give the letter to Russia's President Vladimir Putin in a private meeting to seal the deal. Nene and his team in the
treasury agreed that the nuclear plan would be ruinous – or 'fiscally
unsustainable' in finance-minister-speak – for the country.
NIGERIA: Party activists are in rebellious mood as the
deadline for nominations is due
Ambitious politicians are heading for the final straight
in a bid to get on their party's ticket ahead of Sunday's (7 October)
deadline for nominations set by the Independent National Electoral
Commission.
Although the All Progressives' Congress waved through
President Buhari last week as its choice of presidential candidate for
the 2019 elections, the party has seen tough battles for many of its
other nominations. The biggest upset so far within the party was Lagos
State governor Akinwunmi Ambode's loss of the
nomination to rival Babajide Sanwo-Olu by 72,901
votes to 970,851.
Party godfather Bola Tinubu had thrown his
weight behind Sanwo-Olu. Lagos is the richest state in the federation
with the biggest tax base and a key prize for the APC. And Tinubu's
influence over its choice of candidate confirms his importance in the
region to the party hierarchy. Also in the south-west, there is a
tussle over the choice of businessman Dapo Abiodun as
APC candidate for the Ogun State governorship. Outgoing governor Ibikunle
Amosun, who is a close friend of President Buhari, was backing
a rival candidate.
In the opposition People's Democratic Party, the battle for
its presidential flagbearer is to be decided at a congress this weekend
(6-7 October) with 10 contenders in the frame. The top four in the race
are: former Vice-President Atiku Abubakar; Senate
President Bukola Saraki; Sokoto State governor Aminu
Tambuwal; former Kano State governor and Defence Minister Rabiu
Kwankwaso.
Although Atiku has more name recognition, Tambuwal has strong
support within the party machine. His close ally is Rivers State
governor Nyesom Wike, who insisted that the congress
to choose the flagbearer be in Port Harcourt, his state capital.
Much will depend on the bargaining between candidates. Some of
the 10 have joined the race to secure nominations for other posts in
the political hierarchy. Others are arguing for some closed-door
meetings to decide on a single candidate without going through what
could be a divisive election.
The timing of the PDP presidential primaries, on the eve of
the INEC deadline for nominations, is designed to stop disgruntled and
unsuccessful candidates flouncing out of the party to run on another
party's ticket. This tight timing will add to the drama over the
weekend.
THE WEEK AHEAD IN BRIEF
LIBERIA: A scandal within a scandal
raises fresh suspicions as President Weah's
government announces it has found the 'missing' $104 million in cash
KENYA: Raila Odinga's demand for
constitutional reform referendum deepens fight with Vice-President William
Ruto while President Uhuru Kenyatta remains
non-committal
ZAMBIA: Mining companies complain that
higher taxes would wreak havoc with copper export revenues as
government juggles debt obligations
ZIMBABWE: Finance Minister Mtuli
Ncube, due in London next week, warns that fiscal deficit of
$1.8 billion after this year's over-spending threatens the financial
system