Friday, 30 May 2014

Do Economic sanctions work?

DO ECONOMIC SANCTIONS WORK? Evidence suggests that victims of sanctions, who were in first place recalcitrant, emerge from their ordeal stronger, more- self-reliant and stubborn. Consequently, those who impose sanctions create independent and stubborn nations.

Take the example of Zimbabwe. Sanctions have not brought Mugabe down. In Kenya during the Moi era, Sanctions simply created a nation of self-reliant and independent thinkers. For decade between 1993 and 2003, donor funding in Kenya declined to almost nil. The country learned to get up by its own bootstraps and to day, she funds more 90 per cent of her US$ 14 billion budget from taxes.

 In a similar manner, the west has just made China a world Power. In fact the west’s habit of imposing sanctions on anyone they differ with has sent them to China’s waiting hands. Sanctions are imposed on the assumption that one is the only source of something someone else needs. But where there are competing sources of the same, sanctions are ineffective and in most instances, worthless. Used recklessly as the West does, sanctions can turn against the imposer.

The most recent lesson was the case of Russia. While the West is still wondering what sanctions would be severe, Russia has moved east signing a huge gas exports contract with China. This means that by a stroke of a pen, Russia does not need Europe nearly as much as Europe needs Russia. A day later, China and Russia shot down a UN Security Council vote on Syria sponsored by the West. That appears to be the first warning shot. The next round could be to freeze Europe during winter. In effect, Russia now has the upper hand fighting Nato-Just Freeze them.

The Russian tactic has become common in the world: Whenever the west pushes some country around, they respond by turning to China. Thus China is emerging as a reliable alternative to the West-something of a hiding place.

In Africa, the trend is the same: Push us a round and we turn east is the new foreign policy mantra. So the west is beginning to look foolish in the eyes of many people in the world. No one is kneeling before the West anymore.

Consequently, where sanctions prove ineffective, or are an inappropriate weapon, the west resorts to sabotage. This is what is happening in Kenya’s tourism sector. “This is economic sabotage.” That is how Kenyans reacted to travel advisories by Western Countries- Britain, USA, France, Germany and Australia. Britain underpinned the travel advisory with an evacuation of 200 British tourists lending credence to the Kenyan view of the advisories. The idea was to hit Kenya’s tourism sector by spreading the fear of terrorism.

Ironically Britain did not evacuate the British Terror suspects languishing in Kenyan custody. Neither did it tell us where Samantha Lewthwaite alias the White Widow,” a British citizen said to be the mastermind of terror attacks in Africa is.

Also not evacuated are British Military in Nanyuki, British Industrialists in Nairobi and Tullow oil which has spear headed the discovery of oil in Kenya. And Kenya ns through the social media wondered why these Britons were not viewed to be under threat of terrorists. Perhaps worried about these sentiments and the unspoken demand for retaliation by Kenya, the British High Commissioner in Nairobi denied the charges of sabotage, a whole week after the sabotage. Also it was a whole week without any terror incident anywhere in Kenya.

The travel advisories came just a few days after Kenya signed a total of 17 bilateral trade agreements with China. The flagship agreement was the signing of the US$ 3.8 billion to build a 500km Standard Gauge Railway line from Mombasa to Nairobi. This says observers, annoyed the West whose influence in Kenya is waning hence the retaliation.

Many believe that the West was sending a signal that although China has the capital to finance infrastructure projects, the West still has the wherewithal to hit the economy’s under belly-tourism.

If the idea was to remind Kenya of the West’s economic might, then it risks backfiring. Kenya did not respond by rushing to plead with the West. The government simply said it will shop elsewhere- China, Ghana, South Africa and Nigeria. South Korea and Japan are also on the radar. How the shift to Africa and Asia impacts tourism in Kenya remains to be seen.

This much is certain though, China is slowly but surely elbowing the West out of Africa. According to a Reuters report, China’s fuel import bill will rise to half a trillion dollars a year by the end of this decade.  This makes china the world’s top net oil importer having elbowed the US from the top perch. Much of this Crude exported to Asia comes from the Middle East and West Africa. East Africa, which is also emerging as a major oil and gas producer is also eyeing the Asian market.

And China is liberally building transport infrastructure in the region including Pipelines to transport LNG and crude oil from this region too.

The growth of China as the leading market for crude oil is threatening the Western futures markets as crude oil price could be bench marked on oil from elsewhere rather than the North Sea Brent crude and West Texas crude. Competition generally is a good thing for consumers and a not so good thing for producers who lose some clout especially in pricing.

The threat to futures contracts coupled with the fear of China’s growing presence in East Africa has the west scampering for exploration licenses. Oil majors such as BP and Shell are now even looking for exploration rights in volatile Somalia ignoring the dangers there. BP and Shell are said to be eyeing blocks they had won before the Barre regime fell 24 years ago security concerns notwithstanding. American Oil Juniors are also said to be nosing around for exploration blocks in Somalia.

At this point, we ask; since sanctions are by their nature short-term and cannot be sustained over the long term, what other weapon is the West likely to employ to retain its supremacy in world affairs? Can the West sit back and watch its influence being whittled down? A number of events come to mind.  Among these are the six-month Rebellion in Thailand; the western backed activists’ coup in Ukraine and the al-Qaeda led coup in Libya. Some will backfire as in Thailand where the army took power. Others will resort in chaos as in Libya. There is bloodshed in Ukraine and no one call tell where it will all end.

Intelligence circles in Africa warn that the West could foment similar disruptions in Africa. The fall of Libya to anarchy was not just internal rebellion-a push for democracy- but was fomented to curtail Chinese presence in the Maghreb region. That fall was catastrophic to both Libyans and Africa as a continent. It cut continent wide growth by about 0.8 per cent, economic reports show.

In Libya, China had a multi-billion dollar oil concession with the government of the late Muammar Gadhaffi. The West wanted to disrupt both the growing Chinese influence in the Maghreb and also to disrupt the growing economic boom. Could the same plot be in the offing for east Africa?

Thursday, 15 May 2014

Why China fascinates Africa

AFRICA IS RAPIDLY becoming a battleground for both the West and China. Both are seeking to exert their influence in the region. However, the bungling Western governments and NGOs look like observers rather than contestants. Even then, the Western private sector deserves credit for reading the signs of the time and getting on with it.

owever, credit goes to the private sector in the West for being decisive

Tony Blair, the former British Prime Minister once pronounced a truth that the West had better take note of. He said; “Africans have realized that whenever they ask China for help, the Chinese show up the next day with a digger. The West, on the other hand, loads Africa with sheaves of paper and plenty of lectures on human rights."

Propaganda or Genuine concern?
That realization is the major driver of Africa’s shift to the east. And China has not disappointed Africa despite the noise from the West and its fans in Africa. Due to years of dependence on the unreliable and unpredictable West, Africa ground to stand still. Africa was billed the "Hopeless Continent" by the western Media not so long ago.

Then Africa began to emerge from its doldrums. Now Africa is in the second decade of robust economic growth. Thanks in part to growth in China and India as their demand for Africa resources has ensured stable prices for Africa resources. 

The robust growth has defined Africa's development goals- infrastructure and internal markets.  And these cost huge amounts of money which Africa alone cannot afford. According to Africa development Bank estimates, Africa needs to invest US$90 million a year over the next 10 years in Infrastructure- Roads, Seaports, Airports, Railway lines and power generation and distribution networks.  

Yet the continent can only manage to raise US$40 billion a year leaving huge $50billion deficit. Without these, the cost of doing business in Africa and also the cost of living will remain high; the private sector-both western and eastern- will be dissuaded from investing the continent which will stifle economic growth. No government but the most callous will countenance such a prospect. Hence they turn to friends for help.

This is how neighbours with deep pockets in the West and East come in. And this is where influence is peddled around. And this is where the West, which was the only bull in the street for years, has lost it. In the past, it dispensed aid to Africa in tiny doses and could withdraw even such tiny doses at whim.

Addis Adama expressway Ethiopia
 China, on the other hand, dispenses aid to Africa in full dose. This is where Tony Blair’s truth comes in. While the West is still dispensing doses, China gives the full dose. China’s comes in with the digger while the West loads Africa with sheaves of paper. Aid dished in large doses assures project completion -on time and within budget. Small doses produce the opposite results: Cost escalations, slow and delayed project completion.

Consider this: In the past week, China signed a $13billion deal to finance and build a standard Gauge railway line in Nigeria, a US$3.6 billion deal to build a Standard gauge Railway line in Kenya which could rise to US$20 billion if it is extended into Uganda, Rwanda, Burundi and South Sudan. 

Just a week earlier, the World Bank, which is synonymous with the West advanced to Tanzania US$300 million to upgrade the Railway line on the East African Central transport Corridor. This line, which is the old meter gauge line will compete with the more efficient SGR on the East Africa Northern transport Corridor on which China could end up investing more than US$20 billion. 

Will the central corridor ever compete with the northern corridor to supply Burundi, Uganda, Rwanda and D R Congo? Let's leave that to your imagination.

On failing to match the Chinese muscle, the West and its fans in Africa have resorted to intimidation with such slogans as “you shall pay through the nose, China will cart away all your wealth. Failed, suspended or canceled Chinese projects in Africa.” True Chinese Money is not a free lunch. Africa will have to repay the debt unless forgiven.

However, the critics only focus on the costs and failures without looking at the benefits of such borrowing and other successes of Chinese enterprise in Africa. For instance, the Standard Gauge Railway line, in east Africa’s northern transport corridor will cost Kenya up to US$3.6 billion from Mombasa to Nairobi, a distance of roughly 500Km. But it includes both the Railway line and the rolling stock. This means that the second half of the line from Nairobi to the Ugandan Border will cost a lot less since there will be no rolling stock factored in.

 The Loan will attract a 4.4 percent interest, which is way below the world lending rate. This means there will be savings in loan repayment of 1.6 percent compared to the ruling world market price. Further, officials tell us the Railway line will generate an additional 1.5 percent to Kenya’s GDP. At the current GDP level of US$40 billion, that translates into a Whopping US$600 million. The implication here is, the Railway line, whose lifespan is, said 100 years, will repay its loan within the first 8 years of operation. 

 In addition, the Railway will shrink freight costs by 60 percent and shrink the shipping duration within Kenya to just about  10 hours max. This will mean lower prices of consumer goods since the high freight costs are passed on to final consumers. Further, the line will remove the heavy trucks from our roads which will reduce the damage to our roads, reduce accidents involving heavy trucks and other vehicles.

Kenyan taxpayers will save on the cost repairing and re-building roads damaged by overloaded freight trucks and also save on repair to their own vehicles caused by the damaged on roads. The same benefits can also be recited in the case of Adama- Addis-Ababa expressway in Ethiopia.

As for China carting Africa resources especially oil away to China at their price, that sounds far-fetched. While China could be seeking to be the front-runner in terms of accessing eastern Africa oil, there has never been a hint that the financial support the region is getting is linked to natural resources. In fact, the western oil majors dominate the resources sectors in East Africa. That is what good sense is all about: use the East to develop the infrastructure and the West to exploit the resources.

Thursday, 8 May 2014

No Political strings on Chinese Support in Africa.

Addis-Adama Expressway Ethiopia
funded by the Chinese
 CHINESE PREMIER Li Keqiang has pledged that aid to Africa will have no political strings attached. unveiled extra aid for Africa totaling at least $12 billion on Monday, and offered to share advanced technology with the continent to help with development of high-speed rail and telecommunications.

China will increase credit lines to Africa by $10 billion and will boost the China-Africa Development Fund by a further $2 billion, bringing it to a total of $5 billion.

Li "depicted a dream that all African capitals are connected with high-speed rail, so as to boost pan-African communication and development," the report said. As China has advanced technologies in this area,

Li said China was ready to work with Africa "to make this dream come true".

Equitorial Bridge : A Potential beneficiary
Africans broadly see China as a healthy counterbalance to Western influence but, as ties mature, there are growing calls from policymakers and economists for more balanced trade relations

"All China's support for Africa will come with no political strings attached," Li said. "We will not interfere with Africa's internal affairs or ask something impossible of Africa."  
China has in the recent past financed large infrastructure projects in Africa. These include Power lines, major highways and Railways.

 An estimated US$20 billion worth of deals on infrastructure development are expected to be signed during the trip. These include the US$13.3 billion highs speed Railways in Nigeria,  US$5 billion also in high speed railway in Kenya and some US$3.3 billion Railway project in  Ethiopia. For further reading Go to