Jump to navigation

confidentially speaking

The Africa Confidential Blog

  • 31st October 2017

IMF: Ballooning public debt and political risk cloud Africa's economic prospects

Patrick Smith

We start with a set of dour forecasts from the IMF sounding alarms about debt and political turmoil. On cue is the latest round of ructions coming out of Liberia's and Kenya's national elections. Up in Abuja, President Muhammadu Buhari is stepping up activities on the anti-corruption front. Down in South Africa, the battle between the anti-graft campaigners and an array of politically-linked companies is intensifying, despite the strident efforts by President Jacob Zuma to make it all go away.

INTERNATIONAL MONETARY FUND: Ballooning public debt and political risk cloud Africa's economic prospects
Economic growth across Africa is expected to edge higher to 3.4% next year, up from a projected average of 2.6% this year, according to the latest forecasts by the IMF. But those figures must be set against a background of structural and socio-political problems.

The most serious in the short term is the rapid rise in public debt to an average of 53% of Gross Domestic Product this year from 48% in 2016. As countries are finding it harder to float Eurobonds, more governments are borrowing from local banks, putting pressure on their country's financial systems and crowding out other borrowers. For the vital small to medium-scale companies this means the credit crunch will worse, further choking off funds for investment and development.

More widely, the effects of the borrowing splurge in the past few years threatens to turn into a full-blown debt crisis unless remedial measures are taken soon. Debt service is forecast to consume more 60% of government revenues this year, the IMF forecasts, threatening spending on education, health and housing.

The other red flag raised by the IMF is socio-political. Although it scrupulously avoids anything that obviously smacks of partisan comment, the Fund uses an elaborate code to suggest deepening problems in countries such as Congo-Kinshasa, Uganda, and Zimbabwe where basic state services are deteriorating rapidly. More nuanced are the fund's commentaries on authoritarian regimes in Ethiopia, Kenya, Rwanda and Tanzania which are posting the highest growth rates in Africa.

Although West Africa, which now boasts democratic transfers of power in Ghana, the Gambia, Nigeria and Senegal, pluralistic politics is yet to translate into transformative economic growth. Next year, the countries to watch will be Ghana, which is forecast to pick up speed to grow at 9%, and Nigeria, whose commercial capital of Lagos produces more revenues than several small African countries.

KENYA: Court hearings, street protests and economic boycott will mark next round in the political fight
An exasperated state official said that he feared his country risked being locked in a 'Kafka-esque' cycle of elections, petitions and court hearings. That is indeed the prospect in the short term.

After winning 98% of votes in the 26 October rerun election President Uhuru Kenyatta conceded in his speech that his victory was likely to be challenged in court. In fact, there are multiple petitions in the queue for a court hearing in the coming weeks. They include a catch-all hearing in the Supreme Court about the legitimacy of the 26 October re-run; that was postponed from 25 October, when five of the seven judges on the panel were mysteriously unavailable to hear the petition. Lawyers differ on whether there is any point in even considering the issues that the court should have decided last week.

Another petition, brought by an opposition sympathiser, will argue that the re-run presidential election should be annulled because it was not held in four counties in the west of the country. Outside of the courts, opposition leader Raila Odinga wants to push forward with his campaign of civil disobedience, which will put him on a collision course with President Kenyatta.

This will include more street protests, demands for constitutional change, and most seriously, calls for an economic boycott of all companies Odinga sees as supporters of Kenyatta's Jubilee party. They include the Daily Nation publishing group and the Safaricom mobile phone and data company.

One idea that looks destined to go nowhere was a proposal from Deputy President William Ruto that the government might offer Odinga a 'retirement package' should he agree to bow out gracefully from politics.

LIBERIA: Claims of plot and counter-plot will help George Weah ahead of next week's run-off election
In comparison with events in Kenya, Liberia's election was looking straightforward: the incumbent president leaves office after her constitutional two terms and there is level playing field for the 20 or so candidates to succeed her. Suddenly it is no longer so simple.

Bad relations between the outgoing President Ellen Johnson Sirleaf and her deputy Joseph Boakai are no secret in Monrovia. Johnson Sirleaf's failure to give any endorsement to Boakai, who served as Vice-President since 2005, reflected that froideur. With Boakai and the ex-footballer George Weah in the run-off poll on 7 November, the Johnson Sirleaf issue has become a critical factor in the vote.

Boakai's camp is accusing Johnson Sirleaf of aiding Weah's campaign because of its promises to her son Robert Sirleaf and sundry other favoured politicians. Weah, who beat Robert Sirleaf for a senatorial seat, has been courting the presidential son for several months. Now, say Monrovia insiders, it could be paying off.

Accusations from Boakai's camp and its allies have gone further still to suggest that Johnson Sirleaf has been trying to influence the electoral commission in favour of Weah. Celebrating her 79th birthday over the weekend, Johnson Sirleaf has dismissed such claims but they will liven up the last week of campaigning and could further help Weah.

NIGERIA: Buhari finally sacks top civil servant as he tries to get the anti-corruption campaign back on track
A stronger-looking President Muhammadu Buhari is combining a busier diplomatic schedule – two major foreign trips within a month – with a more active executive style. Criticised for the slow pace of appointments, reshuffles and lack of sanctions against malefactors, Buhari will be picking up speed in the coming months according to his office.

A big part of that will be trying to persuade Nigerians that Buhari's enthusiasm for punishing corruption and recovering stolen funds is as strong as ever. The first sign is the sacking of Babachir Lawal, the Secretary to the Federal Government, who was suspended six months ago after claims surfaced that a company linked to him had benefited from state contract awards in the war-torn north-eastern region of the country.

Then there is the recovery of about US$400 million in Nigerian funds, most of it stolen by the late military leader General Sani Abacha and deposited in Switzerland. It also includes $85 mn. deposited in British banks, apparently the proceeds of a deal between Abacha's oil minister Dan Etete, President Goodluck Jonathan's government, Royal Dutch Shell and Italy's ENI for the multi-billion dollar oil prospecting licence number 245.

The legality of that deal is currently being thrashed out in Italy's high court. The last piece in the jigsaw is the fate of Jonathan's oil minister and close friend Diezani Allison-Madueke whose passport has been held by the British authorities for the past two years. Insiders say that if the police in London don't charge her in the next few weeks, they may have to abandon the case, which would mark a massive failure by the British and the Nigerian authorities, which have been collaborating over the case.

SOUTH AFRICA: Barclays and Standard Bank sack McKinsey consultants for Gupta ties as more multinationals suffer collateral damage
The reputations of those multinational companies benefiting from the Gupta business empire and its political affiliates in South Africa are melting down. British lobby firm Bell Pottinger, which ran a racially-charged campaign to distract attention from the Guptas' financial practices, has gone out of business.

Several South African companies have dropped KPMG as their auditors following the company's work for the Guptas. This is despite KPMG's fulsome apology and the sacking of managers linked to the deals. McKinsey's apologies so far have been less full and it is contesting claims of wrongdoing in court. But it is also hit by the fall-out with two of the country's biggest banks – Barclays and Standard – announcing that they are sacking McKinsey's as their corporate consultants. Meanwhile, parliament's special committee on public enterprises is probing whether McKinsey was complicit in the transfer of funds to the country's ailing state power company to Trillian, a company controlled by a business ally of the Guptas.

Local activists in Corruption Watch are working on a report calling on the United States Department of Justice to investigate McKinsey's relations with Trillian and the Guptas.


TANZANIA: Barrick Gold – not its local subsidiary Acacia –  will pay most of $300 million settlement with government

SOUTH SUDAN: US envoy Nikky Haley says President Salva Kiir has to be held responsible for his role in the country's civil war

COMMODITY TRADING: Glencore's profits are booming despite fresh claims of malfeasance in Chad and Congo-Kinshasa