Category Archives: Africa

Carrying Crude Oil to Newcastle: The Resource Curse Strikes Again in Nigeria

Source: Newswire NGR

Source: Newswire NGR

By Otito Greg-Obi

On May 20th, 2015 the lights went out in Nigeria, Africa’s biggest oil producer. Nigeria suffers from a phenomenon known as the curse of oil which is a subset of a larger issue known as the resource curse. The idea behind the curse of oil is that countries with large oil reserves cannot seem to manage revenues in a way that benefits the majority of the population economically and socially. Some of the symptoms of the curse of oil include lack of economic diversification, revenue volatility, inability to provide public goods and services, corruption, government inefficiency and the Dutch Disease.

As soon as the massive fuel shortage in Nigeria struck, numerous businesses and banks shut down. Power outages also affected common households because neighborhoods are typically powered by individually owned generators due to inconsistent provision of public utilities. As soon as licensed gas stations closed down, black market vendors looking to make a quick Naira (Nigeria’s currency) began selling low quality oil at exorbitant prices. The shortage exemplifies the curse of oil by revealing an inability to provide a crucial public good. Furthermore, the shortage unveils the existence of corruption in black market practices.

Oil importers shut down operations claiming that the government owed them $2 billion. Nigeria’s Minister of Finance Okonjo-Iweala countered that importers misrepresented the debt in an attempt to recover lost revenue from the recent decrease in value of the Naira due to global declining oil prices. The global decrease of oil prices is a perfect example of the volatility that comes with the curse of oil and how it can complicate economic transactions between the governments and oil corporations.

Fortunately, oil suppliers and distributors eventually met with the government for negotiations that put an end to the crisis. The specifics of the negotiations have not been revealed but it appears that the crisis has been averted for now. But as global oil prices continue to decline, economic shocks are imminent. What will the government do to thwart the curse of oil?

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A Trinity of Trade: Africa soon to Launch TFTA

Map of TFTA

By Otito Greg-Obi

Recently, African heads of state gathered together in Egypt to sign the Tripartite Free Trade Area agreement (TFTA) which will join the forces of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC).

Free trade is crucial to global economies because it reduces tariff barriers which in turn results in trade creation. The benefits of trade for developing nations in general are numerous. To name a few: first and foremost, trade allows for specialization meaning countries can build a comparative advantage by focusing on producing goods with low opportunity costs. Secondly, trade encourages healthy competition which incentivizes businesses to increase efficiency and cut costs. Lastly, trade can reduce dependence on existing markets and stabilize countries affected by seasonal changes in markets.

The TFTA agreement has been long awaited – negotiations began in 2005 and were expected to conclude in December 2013. Major components of the trade agreement include the promotion of socioeconomic development and the free movement of goods and services. A customs union is also in the works to be implemented at a future date. But, the TFTA addresses more than just trade, it promotes the upward mobility of business people and advances the cause of social justice.

Although the creation of the TFTA is an exciting development in the world of business, there are still hurdles to overcome during its implementation. Economic integration can be a slow, demanding process, especially since many African countries in this new trading bloc are at varying stages in economic development and trade activity. Furthermore, transportation costs pose a major impediment to the integration of TFTA. Connecting these 26 countries will be a difficult task because the land is vast and requires large infrastructure projects. It will be difficult to ensure that domestic African businesses reap substantial benefits from the new trade area. And lastly, some countries such as Swaziland, Uganda, Tanzania and Zambia are concerned about the loss of revenue that will come from customs unions.

The promotion of the free market is a major stimulant for economic development. However, in order for the free market to run smoothly, it is important for African countries to continue working on other important issue areas such as corporate governance, transparency, and public-private dialogue. CIPE has engaged with TFTA countries such as Ethiopia and Kenya on these issues. These issues must remain at the forefront so that the new TFTA can operate effectively and remain beneficial to all parties involved.

Challenges aside, there is still plenty for businesses and governments in the new African free trade area to look forward to. This trade powerhouse totals $1 trillion in GDP. This is big news for African businesses because it will enhance enterprise ecosystems in the region immensely. With the implementation of this new agreement, trade is expected to increase from 12 percent to 30 percent, meaning economic activity will reach more than 600 million people. This could be a major step towards a Continental Free Trade Area, which the African Union aims to complete by 2017.

Otito Greg-Obi is a CIPE intern for Knowledge Management. She is a rising junior at University of Pennsylvania. 

CIPE Launches First Annual Photo Competition

Photo: © 2011 Swapping aid for trade in northern Uganda, Pete Lewis/UK Department for International Development

Photo: © 2011 Swapping aid for trade in northern Uganda, Pete Lewis/UK Department for International Development

“There is one thing the photograph must contain, the humanity of the moment.” – Robert Frank

Show us your best story-telling photo

Do you like to tell stories through photography? Then show us your best work! The first annual Center for International Private Enterprise (CIPE) Photo Competition is now open for submissions.

Open to participants of all ages, including student, amateur, and professional photographers, the inaugural photo competition will focus on the theme of Entrepreneurship.

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Are Remittances Really Remiss?

Remittances in Somalia

By Otito Greg-Obi

It is a popular opinion in the international development community that remittances – money transferred by a foreign worker back to someone in his or her home country – can have a negative effect on economic growth because recipients tend to spend cash flows on day-to-day subsistence. However, research shows that the opposite is true. A study on the effect of remittances on growth in Africa reveals that remittances seem to have an overall positive effect on Gross Domestic Product (GDP). When compared to foreign aid and Foreign Direct Investment (FDI), a 10 percent increase in remittances leads to a 0.3 percent increase in the GDP per capita income.

The Migration Policy Institute (MDI) points out that remittances are less volatile than international aid and FDI. For example, when the global economic crisis of 2009 hit, remittances in developing countries declined by only 5.27 percent whereas FDI declined by 32.94 percent. MPI also asserts that remittances allow for investment in human capital. For example, research shows that children in remittance households in Sri Lanka and Mexico have higher birthweights and lower rates of infant mortality. In Burkina Faso, Ghana, Uganda, Kenya, Senegal, and Nigeria, households that receive remittances are more likely to have a higher number of individuals with a secondary education. But, remittances are not just about human capital. In the Philippines and Mexico, there is a positive correlation between remittances and high levels of small business investment, as well as high levels of self-employment.

Remittances are a pressing issue in light of the current crisis in Somalia. Somalia boasts a population of 10.4 million people with forty percent of the population relying on remittances to meet basic needs. The country’s current GDP stands at around $2.37 billion. According to Oxfam, Somalia gets $1.3 billion dollars from its diaspora population each year, amounting to 56.5 percent of Somalia’s GDP. Somalia has no formal banking system. Instead, citizens depend upon Hawala, an informal currency transfer system run by money brokers. Increasingly strict money laundering policies threaten to topple the Hawala system and make life more difficult for many Somali citizens. These stricter laws result from a recent global effort to combat the risk of funding terrorism and the drug trade.

The anti-money laundering system is clearly connected to the remittance crisis in Somalia. The question is whether or not the system itself needs to be overhauled to solve the crisis. I had the opportunity to attend a talk given by Peter Reuter at the Center for Global Development. Reuter asserts that meaningful comprehensive reform is necessary and can begin by adopting a “do no harm” model.

Left to right: Jean Pesme of the World Bank, Peter Reuter of RAND, and Justin Sandefur CGD research Fellow

Left to right: Jean Pesme of the World Bank, Peter Reuter of RAND, and Justin Sandefur CGD research Fellow

He suggests conducting research-based cost benefit analyses so that countries can assess the extent to which avoiding risks is cost effective. If findings suggest that costs outweigh benefits, de-risking could be a viable option. He also suggests the controversial Tobin Tax as a possible method for dissuading money speculators.

I cannot say for sure if and how the anti-money laundering system should be reformed. However, I do have recommendations for the remittance crisis in Somalia itself.

In the short term:

  • Promote an increase in transparency between foreign banks, Somali money transfer operators, and citizens.
    • There needs to be a system in place that maintains a sense of trust between banks and citizens who are just trying to help their families survive.
  • Shift perspective on the issue of national security in Somalia.
    • Countries should strive to view remittances as a security stabilizer rather than a destabilizer. It is entirely possible for the sudden removal of remittances to incentivize citizens to join terrorist groups as an alternate source of goods/income.

In the long term:

  • Rebuild a formal banking system in Somalia that can slowly replace Hawala.
    • Bearing in mind the political instability of Somalia, is it necessary to gradually create a more formal economic landscape that offers an alternative to the Hawala money transfer system.
  •  Promote economic growth through capital other than remittances.
    •  Somalia should seek forms of alternative foreign capital (such as FDI) in order to create a larger role for diverse foreign capital for the sake of sustainable growth.

It is imperative that we continue to actively seek solutions to the remittance crisis in Somalia. Almost half of Somalia’s population will be negatively impacted by it. Two major preconditions for economic development are resources and stability. If remittances are protected, they can help to provide these preconditions and in turn contribute to the economic growth of Somalia as a country.

Otito Greg-Obi is a Knowledge Management Intern at CIPE. She is a rising junior at the University of Pennsylvania. 

How Multi-Stakeholder Platforms Help Build an Enabling Environment for Business

betty-maina-ppd

“The work of development is too important to be left in the hands of governments alone. It is the responsibility of everyone. Especially the business community… Business, like governments, will have to be at the forefront of this change. No one can do it alone.”

In the latest Economic Reform Feature Service article, CIPE partner and Chief Executive Officer of the Kenya Association of Manufacturers (KAM) Betty Maina highlights the crucial role of multi-stakeholder platforms in an enabling business environment.

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Successful Public-Private Dialogue: The Kenyan Perspective

betty-maina-ppd

“The work of development is too important to be left in the hands of governments alone. It is the responsibility of everyone. Especially the business community.” This was Betty Maina’s main point in her speech last week at the 8th Public-Private Dialogue (PPD) Workshop in Copenhagen, Denmark.

The workshop explored how the government, private sector, and civil society organizations can effectively use PPD platforms for collaborative governance and leadership in addressing difficult challenges. Through its collaborative process, PPD provides a structured, participatory, and inclusive approach to policymaking directed at reforming governance and the business climate.

As the CEO of CIPE partner the Kenya Association of Manufacturers (KAM), Maina spoke on the crucial role that multi-stakeholder PPD platforms can play in building a better enabling environment for business. Maina recognized the social, economic and environmental challenges that we face, and the important role the business community can play in tackling those challenges.

“Instinctively people recognize that [these] challenges demand a new kind of leadership, a new way of doing things,” she said. “Business, like governments, will have to be in the forefront of this change.  No one can do it alone.”

One need to look no farther than Kenya as an example of the private sector’s role in solving societal problems. During the 2007 election crisis, the business community was crucial in supporting peace efforts and dialogue which helped prevent further violence. The business community was also instrumental in supporting the development of Kenya’s new constitution in 2010 and now plays a critical role in its implementation.

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Empowered Women in Liberia: Their Voices Must Be Heard

empowered-liberia

Lawrence Yealue, II. is a CIPE-Atlas Corps Think Tank LINKS Fellow at Accountability Lab

In Liberia, female participation in decision-making has long been limited to a few women who have fought tirelessly to be heard. Liberian society needs to take a critical look at the role of women across traditional, economic, political, religious, and social interactions. It is time for this silence to end and a new politics of inclusiveness and ownership be rolled out. This requires real decision-making by women rather than a semblance of participation and involvement.

Traditionally, Liberian women have been limited to domestic work, which involves fishing, gathering firewood, cooking, and cleaning. During town meetings, the women were given limited opportunity to contribute their ideas and were rarely selected as village chiefs. In ceremonies, they were expected to decorate and cook. Sadly, many of these traditions continue today.

Today, often the best economic opportunity for women is to work as petty traders, where they face great challenges: sleeping on the cold ground in cramped rooms to sell their goods in bad, often muddy conditions. Frequently involved in trading across borders, they bear great risk in traveling to Ghana, Nigeria, and beyond.

Women move our economy, but the economic decisions that affect them are still mostly made by men. How will the economy progress if the decisions around it are not inclusive?

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