Wednesday, 28 December 2011

How the West Lost Africa to China

Over the last seven years, I have attended several investor conferences in Kenya in which, western and Chinese investors among others, were invited. One thing stood out that explains the growing Chinese presence in Africa. Africa urgently needs investment in infrastructure (roads, rail roads, oil pipelines, Hydro-electric dams, name them) and other economic resources-be they mines or factories.

Western investors do not appreciate this urgency. Many want ideal conditions that perhaps do not exist elsewhere. Others are plainly cynical. In a 2004  investor conference in Nairobi sponsored by Financial Times, European investors could not believe that the Nairobi stock exchange in Kenya, can raise US$100 million in three-weeks.

Roads under construction in Kenya by Chinese contractors.
 We  shall assess Chinese workmanship a year down the roa
Yet the bourse had just two months earlier mobilized US$300 million in just the same period for the local electricity generator, Ken gen. It is noteworthy that this bond was oversubscribed by 200 per cent. Therefore 67 percent of the Money was refunded to eager investors.

Shown that some roads can be concessioned as PPP projects, some were cynical about the EIRR 25%. Way higher than anywhere else. Many would not believe that the vehicle population in Nairobi exceeded 500,000. A majority wondered whether the Laws currently in place can protect their investments-even the old constitution protected the right to property. They still called for more political and legal reforms before they could sink their investment in Kenya.

This song was repeated in all the three conferences I attended. At one point, an irritated Cabinet Minister plainly told the Europeans: “By the time the laws are in place, there will be nothing for you to invest in. All will have been taken.” The local media treated such statement as reckless. But the Minister was right: Laws are promulgated to protect that which already exists. They do not protect nothing.

While Europeans were busy asking for reforms, the Chinese were seriously asking for details about certain projects.  And they went ahead and bid for them. For some reason, they have opted to do the projects as bilateral aid not as commercial projects. Since 2005 the Chinese have build several roads in and around Nairobi, Kenya’s capital city.  A majority of them are no more than three months to completion. That is a total of nearly 500KM or road. The Chinese business model, unlike the West’s model is focused and efficient.

Africa is in a hurry for investors because of the lost decade of 1990s. During this period the West held sway in Africa. And they assumed too much. In the 1990s, the cry in Africa, from east to west, was that “western governments and their donor agencies were adept at shifting goals.” Such shifting of goals, called “donor conditions” frustrated development programming in Africa since, the fulfilling of one condition opened the way for another not development funds. Infrastructure on the other hand was yawning for funds to improve, add or maintain. It was deteriorating.

This hardened Africans who wanted development not fantasies. At the Horizon, China was emerging as an economic super Power. It was also eyeing African resources and Markets. So it chose a different business model to enter the market. While the west was harping on democratic reforms, good governance and respect for human rights, China chose the opposite route. Its model, fitted well with Africa’s urgent need for Investment in its economy. It was focused and efficient in delivering investment funds to the continent.

Poverty, disease, insecurity, lack of markets  and seclusion are as much human rights issues as democratic and political rights. The Chinese, who in 2009 alone invested, US$56.5 billion in Africa have built hundreds of hospitals and thousands of kilometers of roads, as well as government buildings, railway lines and football stadiums, reported the German online publication, www.  It added  "If it weren't for this aid, many African countries would be significantly worse off than they currently are.”

 “Inefficiency and confusion” is what is driving the west out of Africa. For instance, for three-years, the World Bank advised and trudged along with a consortium of European contractors bidding for a 49 Km road by-passing Nairobi, Kenya. The process went up to the construction stage when the World Bank withdrew from the deal in late 2010, saying one of the partners in the consortium was tainted with corruption.

This raised eyebrows in Nairobi as analysts wondered whether the bank did not do a due diligence on the contractors until the last minute. Or did it know all along that one of the parties in the consortium was tainted? Why then, did it not withdraw earlier? A year later, China has approved funding for the same project to start in January 2012

Five years earlier, the Bank’s private sector lending arm, the International Finance Corporation, IFC, treated East Africa to a similar charade. IFC was contracted as the consultant in the consessioning of Kenya-Uganda railways. Being the consultant and transaction advisor, IFC, recommended a South African firm.

Just as the concession was to change hands, IFC withdrew, throwing the whole process into disarray.  Both Kenya and Uganda have yet to gain from the concession. Instead they are always working to try and rescue the white elephant.  Africa is dotted with such white elephants arising from wrong advice by Western experts.

In Uganda, President Yoweri Museveni, frustrated by the West’s shifting of goals over its decision to build a second hydro dam at Bujjagali, imposed a tax on fuel to help build the source from domestic sources. In Parliament, he bluntly told western diplomats to keep off the bujjagali project. Within a month the World Bank had approved US$320 million loan for Uganda to build the same project.

In addition to the entry of China, Africa also posted impressive growth in the 2000s. This coupled with good house keeping has significantly reduced donor dependency giving African countries some elbow room.

This means that some countries, among them, Kenya,could now decide what to buy, from whom and at how much. In 2002/03, Kenya for instance equipped its Police Force and the military with Japanese Vehicles instead of the traditional European sources- Britain and Germany.

Western diplomats based in Nairobi were unhappy.  Led by the British High Commissioner, William Clay, and his Germany Counterpart, Bernt Murtzelburg, the diplomats began accusing the new government of being corrupt. Making independent business decisions that did not favour Britain and the west became corrupt!

To sum up, the west lost Africa to China because of their condescending attitude towards AfricaAfrica paid them back by looking elsewhere for technology transfers and foreign aid. 

Are Chinese angels? Definitely Not! Is the “romance” sustainable? Countries have permanent interests; not permanent friends. China’s business Model may be in sync with Africa’s interest.  Africa must define and cling to its interests. We must  protect family jewels by ensuring that we get the fair- value for our Jewels regardless of the customer’s business model. That means we must put the greater good ahead of the personal good.

Saturday, 17 December 2011

Kenya rearing to become a PPP playing field

Demand for infrastructure exceeds Govt.’s ability to finance
An Estate: This 500 unit estate will use several septic Tanks 
After the massive construction of Major roads and other transport infrastructure, Kenya is set to  embark on another round of developments of social infrastructure. The country is experiencing a major shortage of houses which has buoyed activity in the housing development sector.

Demand for houses, says the government’s official data is 150,000 units a year while supply is just about 30,000 to 40,000 units a year leaving a yawning gap of 110,000 units. Activity in the housing sector has been boosted by the development in roads which has opened up many areas within Nairobi City and its satellite towns. Still demand is way ahead of supply.

Adding to the pressure is the new constitution that has devolved governance to the regions creating 47 county governments. These new governments and their attendant bureaucracy will demand offices and residential houses and related infrastructure in the regions.

These individual units  use Pit Latrines

This means that Kenya, which cannot supply the entire required infrastructure from the exchequer sources, will soon become a major player in PPP projects in East Africa.  The demand for such infrastructure is expected to grow exponentially over the next 10 years or so making the country a major market for real estate and related infrastructure development, say experts. 

The expanse in the foreground and
 background is crying for investors
In the recent past-the private sector, buoyed by ready availability of finance- has moved in to cash in on the demand. But even then demand still exceeds demand by leaps and jumps.

This means that there is room for more investors in the real estate sector to develop the required infrastructure. While the private sector has developed housing units purely on commercial basis, there is one area that has largely been neglected. That is waste water transportation and management systems. A Majority of urban centres, most of which are new and some whose growth will be driven by the devolution of governments, do not sewerage and waste water treatment plants.

This problem is especially critical in urban areas surrounding Nairobi due to the movement of people and businesses from the city to the Satellite towns. Such urban area as; Ruiru, Ruai, Athi River and Ongata Rongai have posted significant growth in economic activity without  concomitant growth in social infrastructure, including  sewerage systems.

A recent situation analysis by the Kenya government reported that, only 14 per cent of Kenya’s urban towns have sewerage systems. It also reported that most of them were old ranging between 20-40 years and poorly maintained. Consequently, said the report, the facilities have deteriorated and do not meet increasing demand leading  to frequent bursts due to overloading.

Kenya has a mixed sewer system which receives both domestic waste and industrial effluent. Industrial waste water, by law, should be pre-treated on site before discharge into the municipal sewer system is discharged without raw due to laxity in enforcing the law. Industrial effluent is a major pollutant of water sources and the environment

Failure to pre-treat industrial waste water leads to sewer bursts due to blockages from suspended solids, corrosive effluent and secondary reactions of effluent in the sewer line, experts say.
 A survey by this publication in the above named urban areas established that, most estates have built communal or individual Septic tanks while many other developments have Pit Latrines. These are emptied when full by exhausters at high cost. The high cost of emptying the tanks, this publication has established, is an incentive for some to empty their septic tanks into public places. This contributes to poor hygiene and environmental degradation. 

Since local authorities are strapped for cash, they are unlikely to invest in sewerage systems any time soon. Although figures are not readily available, experts say that the investment is colossal.
Therefore they called on the government to consider establishing a PPP framework in the sewerage sector to tap private sector finance and management of the sewerage systems in the country.

Monday, 12 December 2011

Revealed: Why the frequent spats among the Sudans?

Omar El-Bashir: Sudanese President

 Tension between South Sudan and the Northern Sudan is unlikely to be resolved anytime soon, South Sudanese government sources say. There may be temporary truces, but the tensions will remain and could sometimes explode into full scale military combats, said the source.

The bone of contention is the $20 billion a - year-oil wealth. Before South Sudan seceded from the then Republic of Sudan in July this year, the country was producing some 0.5 million barrels of crude every day. That earned the country an estimated US$ 54 million per day at the price of US$108 per barrel or $1.62 billion a month. Shared equally between the North and the South that meant a whopping $810 million in its coffers a month or $9.72 billion a year. Before the 2005 CPA, Khartoum used to pocket the whole lot, the equivalent of US$19.44 billion at current prices.
Hugging or Back stabbing: with Salva Kiir
President of South Sudan

The secession of South Sudan, which controls 75 per cent of the crude output, changed that equation. It meant that North Sudan had to make do with 125,000 barrels of crude. This is just $13.5 million a day or $405 million a month, an equivalent of US$4.86 billion a year.  South Sudan on the other hand pockets the rest, that is US$1.215 billion a month or $14.58 billion a year.

 Sudan, that is Khartoum, is in a severe economic crisis. The sharp fall in oil revenues has resulted in a sharp decline in Forex reserves in Khartoum. Sources say that Khartoum’s import Bill is US$2.5 billion a month. Previously, oil revenue could finance up to 35 per cent of her imports. That figure has now been reduced to 16.2 per cent. This resulted in the weakening of the Sudanese currency, the Pound, and the resulting increase in domestic inflation that sparked riots in Khartoum in September. Consequently, to build a forex reserves, Khartoum has increased the exports of gold, reported Bloomberg news service on December 6, 2011. Even then, there are fears that soon El-Bashir could face kind of unrest that toppled presidents in Tunisia, Egypt, and Libya this year.
Not taking Chances: South Sudan Army guard a Refinery
 Starved of forex and with no significant oil revenue of its own, Khartoum hiked the crude transportation fee for Juba. Khartoum, our sources say, charged US$50 per barrel. Juba objected since the standard transportation fee is far less. Nigeria for instance charges her landlocked neighbour, Gambia US$1.00 per barrel. To charge US$50 per barrel was extortionist and a ploy to continue sharing of oil revenue through the back door. Juba offered to negotiate the transportation fee around one dollar per barrel meaning that South Sudan is ready to pay $375,000 per day or US$135 million a year as transportation fee. Hence the on-going dispute over fees.

To make matters worse for Khartoum, the oil Pipeline’s minimum capacity is 200,000 barrels a day, the source said. This means that Khartoum cannot even export her own output without support from her neighbour. What’s the point here? That Khartoum is at the mercy of Juba now and in the future. That is why the North is aggressively pushing south in the hopes of finding some more oil deposits or even acquiring some by force, our source said. It also using this aggression in the South to divert attention from the storm building at home, said the source.

This is where China comes in. Being a huge buyer of the Sudanese Oil, China is aware that if the South turned off the tap, the North will not export her crude regularly.  Although quite civil on the surface, China is said to be using the Carrot and stick diplomacy to get especially the North to relent.

It is considering building a new refinery in the South thus completely eliminating her dependency on the North. Should this come to pass, the North’s Pipeline will have been rendered worthless since it cannot transport less than 200,000 barrels a day.

Khartoum aware of this as The South is considering building a pipeline through Kenya into the Port of Lamu. Kenya is looking for investors to sink some US$8 billion  into the development of the port in Lamu together with the construction of a Road and a railway line linking Kenya and South Sudan. That, say sources, is the reason why Khartoum is still clinging to some parts of the South especially Abyei, since there are suspected oil deposits.

 Given the economic stakes, it seems that a truce, if any, will be temporary and that the former components of the Sudan will quarrel frequently over who’s stealing from who. Whether these spats will develop into gunfights remains to be seen.

Wednesday, 7 December 2011

A court ruling that Lacked wisdom

A Kenyan High Court ruling made last week spawned a noisy exchange between the executive and the Judiciary. The ruling, in response to an application by an NGO, ordered the government to arrest the Sudanese President, Omar El- Bashir, and hand him over to the ICC “should he visit Kenya.”

The government immediately rejected the ruling thus opening the noisy exchange with the judiciary and some human rights activists. It also opened a diplomatic spat between Kenya and Sudan. The three- pronged spat has raised critical Questions among Kenyan analysts.

The first is; for who does the Kenyan law and the Kenyan Judiciary exist? Whose interests should come first in the dispensation of justice? What does the independence of a judiciary mean? What should it limits be and who defines such limits? What is the role of the Judiciary in the protection of Kenyan interests world-wide? When it come to arbitrating international disputes what should be the guiding yard stick?

In attempt to answer these questions; the legal profession performed dismally. And this could put the entire profession into a state of disrepute in the eyes of Kenyans. A flurry of opinion pieces and editorial in the local press simply exposed the dilemma the ruling put even the legal profession in.

All of them harped on this myth of the independence of the judiciary to justice what was clearly a “political ruling from the bench,” said a local analyst. The “apologists” of the ruling demonstrated clearly the hypocrisy of the legal profession when one of their number stirs public anger.

The Sudanese president responded using arm-twisting tactics. He ordered the Kenyan Ambassador out within 72 hours and recalled its Ambassador in Kenya. Other measures that were not publicly announced included: the expulsion of all Kenyans living and working in Sudan, cessation of trade relations, and the ban of all flights entering or leaving Kenya from Over-flying Sudanese airspace. Clearly Kenya interests were threatened

Sudan is not a leading destination for Kenya’s exports in the world. But is the fifth largest Consumer of Kenyan tea in the world. Tea exports earned Kenya some US1.2 billion in 2010; Sudan consumed some US$250 million of that. That is a market that has to be handed with velvet gloves if: Tea prices are to remain high in the world market and two if Kenyan tea farmers are to remain profitably employed. Barring flights into or out of Kenya from overflying the Sudanese airspace would have a similar effect on the tourism industry especially. Further the interest and safety of the 1,500 Kenyans living in Sudan had to be considered.

It is not clear the how far Sudan would have carried out these threats or if carried out at all or how long they would have been in force in Sudan. However, a system as temperamental as Sudan’s could have put these injurious threats in place-for a while

The short and the long of it all is this: the judge should have considered all these facts before handing out the ruling.  By handing out the ruling oblivious of these facts in effect handed Sudan the diplomatic coup against Kenya that was evident last week.

Strangely the legal profession does not think it is their business to protect Kenyans and Kenya’s interests world-wide. They think that somebody else should. Which brings to mind a case in Britain that the ‘apologists” referred. A magistrate’s court issued a warrant of arrest against a former Israeli Foreign minister, Tzipi Livni, at the request of lawyers representing Palestinian victims of Israeli military operations in Gaza.

 The Israeli Government rejected the ruling. The British government was embarrassed and   amended the law removing a private prosecutor’s freedom to seek a warrant of arrest in exercise of "universal jurisdiction.”  Now private prosecutors must obtain the consent of the director of public prosecutions before the issuing of a warrant of arrest by any court in exercise of "universal jurisdiction.”
The question still remains are judges and Lawyers oblivious of national interests? If that is the case, then do they understand the role of the Law in the first place? By definition; the Law is a social contract between the citizens of a country to protect their common good? This means national interest take precedent over other considerations. In other words the Law cannot supersede national interests.

So was the ruling right? To the extend that it subordinated Kenyan interests to other interests, it was a ruling in error. No wonder Kenyans are reading “politics” in the ruling. According to the Political school of thought, the ruling may have been obtained in a bid to prove to the ICC, where six Kenyans are charged with crimes related to the 2007/08 post-election violence, that Kenya is not ready to Co-operate with it. This would mean that should the Court rule that their cases are admissible, then two of the six, who are presidential candidates in the 2012 election, could be detained. Once detained that would pave the way for some interested candidates to win the Presidency.

 This line of thought is helped by the fact that the judge appear to have depended on political opinion of the two principals in Kenya’s coalition government. The judge is reported to have quoted the opinion of those letters to make his ruling. It is not surprising then that politicians took the Judiciary by the horns.

And the judiciary, specifically the Chief Justice is not helping matters any by jumping into the fray. In fact the Parliament had to advise him to stop jumping into such disputes because they could be taken to the Supreme Court for arbitration and embarrass him. The CJ is the President of the Supreme Court in Kenya.

The ruling lacked in wisdom, say analysts. Wisdom would have obligated the judge to consider the potential for embarrassing the country. He should also put Kenyan interests and not those of ICC or any other provision of the law ahead of Kenyan interests. The promulgation of any law, say analysts, should not be divorced from national wisdom. Probably other subjects, such as Diplomacy, economics and basic accounts should be introduced at the Law school to make judges wiser, say analysts.