The government handcuffs that keep Africa shackled to poverty
Government intervention will not transform the lives of the African people and make them prosperous. Private investment will.
Move around any major city in sub-Saharan Africa and you’ll probably get the feeling that Africa is rising. Party at a Burna Boy concert in Harare. Take a selfie with wildlife at the Nairobi National Park. See a Nollywood blockbuster at one of the new cinemas in Monrovia, or eat jollof rice at an American food franchise in Lagos. Life’s certainly better for many Africans than it was 20 years ago.
However, that picture changes quickly when you put it in perspective. Africa was the poorest region in the world 20 years ago and it’s still the poorest region in the world today. In that time Latin America has cut its poverty rate by about 40% and South Asia has cut its own down to roughly 10%. That leaves sub-Saharan Africa lagging far behind.
Close to half the people in sub-Saharan Africa today live in poverty and 27 of the 28 most impoverished countries in the world are in in this region. Ironically, Africa’s largest economy, Nigeria, is also the country with the highest number of people living in extreme poverty.
But why are so many poor people?
It’s because African government policies prevent the people from prospering by depriving them of the essential things they need to pursue their own happiness.
In my experience in political risk covering Africa, I’ve found that the people are poor because their government’s policies make sure (a) they can’t earn a liveable wage from their job or trade; (b) they lack the education that can help them and their families earn more and move up in life; (c) they lack infrastructure for energy and mobility; (d) insecurity constantly threatens them and their livelihoods; and (e) their justice system is so weak that the people practically have no way of protecting their livelihoods and their rights under the law.
Seeking the political kingdom
Many Africans resent it when foreigners make comments suggesting that Africa is one country, but the reality is that policy-making is often so similar across the region that it looks as if African political leaders are reading from the same manual – and perhaps they are. Ghana’s founding president Kwame Nkrumah said more than 50 years ago, “Seek first the political kingdom and all else shall be added unto you.” Well, his country soon went bankrupt while he made himself life president, but his principle still shapes African policy-making today.
A chicken in every pot
In 2016, Nigeria’s economy hit a big bump when global oil prices fell and the country could no longer earn enough petrodollars to pay for imports. The government went broke, civil servants went without pay and firms struggled to find a foreign exchange to import raw materials. When money is tight in your country, you at least want to be able to feed your family and keep the lights on. But the Muhammadu Buhari government made a number of policies that made it even harder for the Nigerian people to get those basic needs.
One, the government blocked rice imports by putting up a partial ban and forex restrictions. Under Buhari’s influence, the central bank then began paying out loans to local rice farmers to boost domestic output. The problem was the rice subsidies were disbursed so inefficiently that the Central Bank failed to recover the loans and production never rose to meet the demand. Some recipients even believed the loans were gifts for supporting the president in the last election. Meanwhile, rice was being smuggled in through the land borders and the price of a bag of rice doubled within months.
I spoke to residents in one state where there had been blatant vote-buying during an election, and they told me how people trooped to markets to stock up on food using the bribes they had received at the polling booths the day before. That was how difficult it had become for many Nigerians to simply feed themselves.
Paying the price
As that went on, electricity firms in the country tried to raise prices in relation to the changing economic environment (eg currency depreciation) and in line with an existing tariff review agreement with the regulator. However, the government blocked them from raising prices and instead began paying the firms subsidies from an intervention fund to augment the revenue shortage. But that wasn’t enough to bridge the gap.
Retail supply firms were unable to recoup their costs from consumers, who are mostly unmetered. The more losses they made, the more they owed the bulk electricity suppliers and the less they invested in increasing supply to consumers. The result was the Nigerian people continued to get cheap electricity, but power cuts remained as frequent and as prolonged as ever.
There are no free meals
Liberia caught the world’s attention in 2013 when 25,000 students sat the University of Liberia entrance exam and all of them failed it. A spokesman for the university said the students “didn’t know anything” about English – and the university only agreed to squeeze in 1,800 applicants after the government intervened. President George Weah took charge in 2017 promising to fix that problem.
His solution: free tuition for all students in public universities.
Interestingly, Weah himself had just announced to the Liberian people that the government was broke and that the economy was in free fall. Yet, he went on to unilaterally declare tuition-free without consulting stakeholders about the financial implications of running a free education programme.
Of course, the students applauded the move and it made the president more popular. But one year later, it quickly became clear to those applauding students that the government couldn’t afford to pay the bills. Professors began skipping classes as the school administrators struggled to pay staff and keep the doors open. By June 2019, the head of the University of Liberia had written to the country’s parliament appealing for funds to stay afloat and protesters were marching in the capital, Monrovia, about the state of the nation.
African heads of state usually come to power promising to fight corruption and clean up the system, and Sierra Leone’s former army chief Julius Maada Bio was no exception. Bio became president in 2018 and swiftly set up special commissions to probe his predecessor and others linked to the previous government. He sacked the head of the anti-corruption agency and installed his own man Francis Kaifala, who was soon in the local newspapers posing with the president with cheques, said to be for money recovered from corrupt persons linked to the previous government.
Kaifala then tried to get parliament to amend the law so his agency would have the power to unilaterally suspend contracts without a court’s approval, on the grounds that “they are against the interest of the people of Sierra Leone or corrupt”. The proposed amendment would also empower his agency to simply accuse people of corruption and then hold them guilty until they prove themselves innocent – turning on its head the legal standard that suspects are presumed innocent until found guilty.
Back then I spoke with local activists in Freetown who expressed concerns that the government’s anti-corruption actions appeared to be targeting figures associated with the previous government rather than strengthening the country’s weak public sector, especially its justice system. But the Sierra Leonean people seemed pleased to hear government reports about how the past government had stolen from them and how the new government was now hunting those “thieves”.
Note that the ongoing crackdown and asset confiscations happening are being done unilaterally by the anti-corruption commission, and not as a result of prosecution in the country’s constitutional courts. In fact, the judiciary continues to run without essential facilities and the justice system remains as broken as before.
There are only 35 judges in the whole of Sierra Leone – a country of eight million people. Prolonged trial delays are rampant and trials can get adjourned more than 40 times, according to the US State Department. Meanwhile, pretrial suspects continue to languish in prison often with no legal counsel and even with no vehicles to convey them to court hearings. Under these circumstances, the Sierra Leonean people still have little access to justice by which they can protect their livelihoods and their rights under the law.
‘The people’s president’
African politicians love to claim that their policies are there to help the poor. One West African president even describes his agenda as “pro-poor”, but when you look beneath the surface you’ll see it’s all a ruse and they really don’t care about lifting people out of poverty or making life better for poor people.
They’ll claim to be going after corrupt people to recover “the people’s money”, but they’re really hunting their opponents to snuff out opposition and guard their political kingdom. They’ll promise their people all sorts of free things, subsidies and mass programmes that they have neither the resources nor the abilities to deliver effectively. For instance, Kenya’s President Uhuru Kenyatta promised to deliver 500,000 affordable housing units by 2022 while Ghana’s President Nana Akufo-Addo told his people during campaigns in 2016 that they would get 216 new factories – one in each district in the country. Akufo-Addo’s term will end in 2020, and less than 20 factories have been built.
Those contemporary African leaders are simply taking their cue from the continent’s past leaders. Kwame Nkrumah pursued import substitution in Ghana by trying to build hundreds of factories processing all kinds of things from meat to bananas. The factories mostly failed. Nigeria’s Federal Housing Authority was established in 1973 to produce 261,000 housing units for the masses. As of 2012, it had met only 15% of that target – after 40 years. Today, Nigeria’s housing shortage is the largest in Africa at 17 million units and the government is again promising to deliver 500,000 flats by 2023 through a new Family Homes Fund.
It’s clearly evident that these government mass programmes, subsidies and free things have failed to improve the quality of lives of the African people because they’re inefficiently run and badly targeted. That’s how Cameroon’s government recently built “affordable housing” that 80% of the population couldn’t afford. But contemporary governments continue to rehash them anyway because they’re popular with the masses who are often uninformed by their country’s weak media.
The path to prosperity
The path to prosperity is paved with private investment. Government intervention isn’t what’s going to transform the lives of the African people and make them prosperous. It’s private investment. My favourite example for illustrating this is Nigeria’s telecom revolution.
Twenty years ago, Nigeria’s military transferred power to a civilian government and the new government began privatizing dozens of state firms including the telecom monopoly Nitel. Less than 1% of Nigerians had a telephone line at the time, and the service was terribly unreliable anyway. But then one private firm got a licence and made a foreign direct investment, followed by others.
There are now more than 150 million active phone lines in Nigeria compared to only 425,000 back in 2001. The telecom industry has grown in worth from $50-million to $68-billion, more than one hundred-fold, and Nigeria has become the largest mobile phone market in Africa. From the kid selling airtime under an umbrella in the village to the CEO building Africa’s next big start-up in Lagos, every Nigerian has been touched by this spectacular feat in the telecom sector.
That is the transformative power of private investment. It creates jobs. It enriches lives. It opens up innovation and makes firms compete more efficiently so consumers continually get better goods and services. Nigeria’s biggest success story since democracy returned in 1999 has been a result of private investment, costing the government nothing. The market simply did it for free.
That success story illustrates how much more African political leaders can accomplish for their people if they put private investment at the heart of their decision-making. What does this mean in practice? It means expending fewer resources on government intervention and devoting more resources to strengthening systems in the business environment that will directly drive private investment.
Nigeria spent more than $2-billion on untargeted petrol subsidies alone in 2018. That was six times more than its entire education budget. You’re never going to realise your potential for attracting investment if you’re blowing six times more money on subsidising petrol consumption than you’re spending on your citizens’ education. It speaks volumes about the Nigerian government’s priorities and why the country gets so little investment relative to its potential.
There are two ways in which growing human capital drives private investment. One is in terms of labour and the other in terms of purchasing power. Investors want to invest in markets where they can find people who are skilled, well-educated and healthy. The healthier, the more skilled and the more educated the workforce in your country is, the more attractive it is to investors. Secondly, people who are healthy and have formal skills have the capacity to earn more than those who don’t –and consequently can spend more on purchasing goods and services. This increases the size of the market that an investor can target and makes them more likely to make an investment decision in your country.
This is why the government needs to spend a lot more on increasingly improving education, healthcare and other aspects of human capital. It involves building new hospitals and schools, adequately equipping and staffing existing ones, and improving welfare for those who work in those facilities. These will do more to raise the quality of education and healthcare than free, untargeted subsidy programmes that the government evidently cannot afford.
Justice and regulation
Businesses are like people in that they have rights and thrive best under a justice system that is accessible and equitable. Businesses also need to be sure the government and regulators aren’t just going to change the rules arbitrarily in a way that puts their investment at risk. This is what Tanzania’s President John Magufuli did in 2016 when he banned foreign cement firms in his country from importing coal to power their plants. In the meantime, there was creeping expropriation elsewhere as the government pursued legislation handing it a higher, mandatory stake in gold-mining firms.
Magufuli’s aim was to compel cement firms to buy coal locally, but the local output was more expensive due to high transport costs and was simply insufficient to meet demand. If you were in Tanga in northern Tanzania, it was cheaper for you to import coal all the way from South Africa than to buy and move a local consignment from across the country. One foreign firm had invested $140-million in a new cement plant just the previous year. Now it was unable to cope with the rising costs and energy shortage and quickly found itself struggling to stay in business.
An upheaval arising from political risks such as expropriation or shocks in the regulatory environment can effectively wipe out your investment because you can’t just fold up a cement plant into your briefcase and walk away if it happens. You’re going to lose your money or your shareholders’ money. That’s why it’s such a major deterrent to investing in a country when there’s a high risk that you won’t be able to protect your business or enforce contracts that you make within the justice and regulatory systems. And that’s why African governments need to fix these systems.
If African leaders really care about tackling corruption and cleaning up their public sector, they need to put down the gavel and let their judiciary do their job independently. Nigeria’s secret police raided the homes of four top judges one midnight in 2016 and accused them of corruption. None has been found guilty in court. Later, the president unconstitutionally suspended the chief justice for alleged corruption, but looked away when one of his own political allies was caught on tape allegedly receiving bribes from a contractor. That’s what happens when politicians cling to the gavel and interfere with the justice system. Allies are shielded, threats are targeted, and businesses and citizens cannot get fair access to justice.
Courts are like schools and hospitals. You’ve got to staff and equip them adequately so they can render their services effectively. Just as you’d want your citizens to easily be able to see a doctor when they need medical attention, you’d also want your citizens to easily be able to see a judge when they have a case. You’d want law enforcement to respect civil rights and you’d want the state to provide competent legal representation for those who can’t afford it, so they can get a fair trial. You’d also want to raise confidence in the courts by strengthening the judiciary to self-clean and shield itself from undue influence. This is possible when politicians in the legislature and the executive team up, not to subvert the judiciary, but to build it up through better legislation, increased appropriation and supportive policy-making.
Only a few African countries can afford to adequately provide roads, rail, electricity and other infrastructure for energy and mobility. A recent trend has been to take on hefty loans from countries such as China, but there are already concerns about the wisdom in piling up that much public debt.
Africa’s first light rail, in Addis Ababa, opened four years ago. Now the rail service is barely paying for itself while Ethiopian authorities are struggling to repay the Chinese loan and keep up with maintenance. Attracting private capital to infrastructural development is a more sustainable way to build these systems. The problem is, private investors will not take on the risk if the policy environment makes it unprofitable to do so.
Take electricity for instance.
In 2017, one president in East Africa sacked the head of the electricity regulator for allowing a tariff rise because the president didn’t want it to affect the poor – most of whom didn’t have access to electricity anyway. Two-thirds of people in Africa have no access to electricity and Africa has the lowest per capita electricity consumption in the world. This is chiefly because African governments just won’t let utilities charge prices by which they can recoup their investment, and so there’s little incentive for more investment.
One World Bank team studied 39 African countries in 2016 and found that only two of those countries had utilities recouping their operational and capital costs at the existing pricing. In two-thirds of the countries, the team found the revenue shortage was so large that firms would simply be unable to supply electricity reliably or electrify unserved areas unless they raised tariffs.
The evidence shows that subsidising electricity for everyone in an untargeted manner only makes sure they don’t get the electricity. However, supply extends to unserved areas and becomes more reliable when the utility is able to set tariffs competitively for firms and households who can afford to pay more, while the additional revenue from those higher tariffs can be used to cross-subsidise a significant amount of poorer consumers. That way, more people can get a stable supply and consume what they can afford.
Get out of the fancy neighbourhoods in a typical African country and see the amount of suffering going on in the rest of the country. When I had my son two years ago in Lagos, I heard stories of mothers detained in hospitals until they could pay for their child’s birth. I’ve also just learned about a family whose newborn died of jaundice because they didn’t have money for the hospital.
That’s why it’s important to remember that this article isn’t about statistics and theoretical situations. It’s about the everyday life of poor people in Africa who have to go without electricity, without a decent living, without quality education or healthcare, and finally without access to justice by which they can protect themselves and their livelihoods.
All of these things are happening because of their government’s policies. Their own government’s policies have put them in handcuffs so that they cannot take their future in their hands and pursue their own version of happiness in their country. Unfortunately, they don’t even realise this. DM
Adedayo Ademuwagun is a political risk consultant based in Lagos.
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