AFRIPOL.ORGIDEAS HAVE CONSEQUENCES
State of Political Economy
The greatest resources and potentials of a nation reside in the minds of free people not under the soil. Free minds create the wealth of a nation.
- E. T. Chiakwelu
As many African nations are moving away from socialism and collectivism, an economic paradigm based on central planning into free enterprise and democratic capitalism. A coherent, deliberate and rational economic policy rooted on transparency and probity are needed, which are also the fundamental building blocks of formulating and consolidating a laissez faire economy devoid of central planning and corruption.
AFRIPOL an advocate of free enterprise will assist in facilitating this process of transformation and change.A journey into free market will not immediately transform those economies but with an industry, commitment and genuine responsibility those economies will be subsequently be productive. The major defects of capitalism: inflation and unemployment can be checked and controlled with sound fiscal and monetary policies. For this is the logic of economic reasoning grounded on a rational and logical market forces framework.
Many African countries have abundance of natural and raw materials, but corruption, paucity of managerial skill, management competence and technology makes the economic outcome unfavorable.
AFRIPOL is to enhance the rational utilization of resources in African economic landscape via the availability of logical information for economic decision and prudent management.
AFRIPOL promotes and encourages democratic capitalism through organization of lectures, programs and information dissemination that will enable capitalism and individual creativity to flourish and take hold in Africa.
AFRIPOL will monitor the state of political economy, deficiencies and progress in African nations.
Where is Africa going wrong?
By Philip Emeagwali
I once believed that capital was another word for money, the accumulated wealth of a country or its people. Surely, I thought, wealth is determined by the money or property in one’s possession. Then I saw a Deutsche Bank advertisement in the Wall Street Journal that proclaimed: "Ideas are capital. The rest is just money."...click
Fertile Ground: Hedge Funds Travel to Africa
Investing Pools Pour In Money
As Nations Get 'Houses in Order,'
Other Emerging Markets Fade
By ALISTAIR MACDONALD
October 6, 2006
For 20 years, whenever Congolese businessman Kalaa Mpinga wanted to finance projects in sub-Saharan Africa, he would turn to agencies like the World Bank and the European Investment Bank. Now, rather than international development agencies, two hedge funds -- Lansdowne Partners Ltd. and Marshall Wace LLP -- are among his biggest investors. Together, they own more than 12% of the company he heads, Mwana Africa PLC.
"Today, you will get far more results by going to the market and raising your finance that way," says Mr. Mpinga, chief executive of Mwana Africa, a mining company that went public on the London Stock Exchange last year, after obtaining the listing of a rival African miner it acquired.
"With stocks in more-traditional emerging markets like Brazil and Russia still close to historical highs, some hedge funds are turning to resource-rich sub-Saharan Africa for investments. The push reflects both the uptick in some of the region's economies and the growth of hedge funds -- loosely regulated pools of private capital -- and their search for new frontiers.
"It's a combination of falling returns in all the traditional emerging markets, cash flowing into hedge funds, and high demands for commodities, combined with many of these countries getting their houses in order," says Marc Pagano, head of emerging-market credit trading in London at Citigroup Inc. Citigroup is now trading securities from countries such as Kenya, Botswana, Tanzania, Uganda and Ghana for its clients. Within a few years, it has gone from trading in two countries in sub-Saharan Africa to 12.
This year, hedge-fund favorites have included buying and selling the debt and currencies of Nigeria and Zambia. A year ago, an average day's trading in Nigeria's currency, the naira, would be 650 million naira ($4.5 million). Now it could see as much as 10 billion naira, trading on various markets, Mr. Pagano says.
Mutual funds have also increased their exposure to the region. Artemis Investment Management Ltd. in London owns a stake in Mwana Africa of around 10%. Because the region remains volatile, most hedge funds choose to invest in companies that have stocks, such as Mwana Africa, that trade in developed markets.
Most hedge funds don't have the staff, or the contacts, to research investments in Africa on their own. They would rather go through companies that are well-connected in the region. That works to the advantage of Mr. Mpinga, the son of a former prime minister of Congo. RAB Capital PLC, one of London's largest hedge-fund groups, has bought large holdings in at least nine London-listed companies with mining interests in sub-Saharan Africa in the past year. One is copper miner Weatherly International PLC. RAB and another hedge fund, Matterhorn Investment Management, own almost a third of the company.
Weatherly Chief Executive Rod Webster says hedge-fund investors have proven loyal but different from the longer-term investors he has been used to.
Already, hedge funds are broadening their reach into local companies and governments. Delamore Asset Management Ltd., a Bahama-based hedge fund, has been buying distressed government debt, as well as trade-related debt from Angola, paying two to 15 cents on the dollar for about $36 million of the debt of a country that recently emerged from civil war. Delamore allocates about $170 million to the region, but this week its board approved increasing that by as much as $40 million, says Sanjeev Kumar, a Delamore director. Delamore estimates returns in its Africa Investment Portfolio at around 45% as of September.
"There is a lot of red tape. Governments can take two or three years to come through on their promises. Sometimes we lose patience," says Mr. Kumar.
Still, sub-Saharan Africa remains a small part of emerging-market investment. Excluding the relatively developed market of South Africa, less than half a percent of the $1.66 trillion of emerging-market debt traded in the second quarter, as surveyed by the Emerging Markets Trade Association, was in Africa.
With commodity prices falling, now will be the test to see how loyal these new investors are. Mwana Africa has seen its share price decline almost 50% since May, while Weatherly has fallen around 25% since early August.
Moreover, hedge funds have been criticized for investing in regimes with poor human-rights records, such as Zimbabwe. To remove some of the risk of investing in war-torn Sudan, Delamore devised a novel way to secure payments on its infrastructure projects. Chinese companies have been one of the largest buyers of Sudanese oil, and some of their payments now go directly into a special-purpose vehicle set up by Delamore to guarantee they get paid for their work. Even if the government payments dry up, Delamore can rely on a flow of cash.
-- Jackie Range contributed to this article.Alistair MacDonald at alistair.macdonald@wsj.com1
Threading Africa's Needle
Everyone talks about helping sub-Saharan Africa. Well, the chance to save more than 100,000 jobs there is on the Congressional table. We should find out some time after Labor Day whether the help-Africa talk is anything more than that.
Senator Bill Frist is trying to renew part of the African Growth and Opportunity Act (AGOA), which since 2000 has provided duty-free access to the U.S. market for substantially all products from most sub-Saharan countries. The full act doesn't expire until 2015 but its textile provisions are set to expire in 2007. These let sub-Saharan-assembled clothing that uses fabric purchased from any third country enter the American market duty-free. If this provision lapses, Africa could lose 150,000 jobs.
Mr. Frist has said he wants to extend the third-country textile provision so that goods sown in Africa will retain their duty-free access to the U.S. But to do that, he'll need Democratic support. Incredibly, it's not a sure thing.
Since the act began in 2000, two-way trade between sub-Saharan Africa and the U.S. is up 115%. In 2005 it increased by 37% to $60.6 billion. The good news is not only that in 2005 the U.S. bought more from Africa, but also that U.S. exports to Africa went up -- with "notable gains in agricultural goods, machinery and transportation equipment," according to the U.S. Trade Representative. This means Africa is opening itself to imports and modernizing, which is key to wealth creation.
Admittedly a large part of the spike in two-way trade with Africa has been in oil, and indeed AGOA non-oil exports to the U.S. were down 16% in 2005. But that doesn't tell the whole story. Africa's apparel makers battled tough circumstances in 2005. Any list would include the expiration of the multifiber agreement, subsidies to U.S. cotton-growers and China's more generalized government subsidies to its apparel manufacturers. The possibility that the textile provision won't be renewed has already caused some manufacturers to shift production out of Africa.
The act originally hoped to push Africa toward making its own fabric, but that hasn't happened to the extent envisioned. Even though local fabric making has increased, it's still not sufficient to meet the needs of African clothing assemblers who want to sell into the U.S.
The bottom line is that if the provision on using outside fabric dies, so will Africa's assembly industry, which is a particularly important source of jobs for women. This explains why the extension is supported by Oxfam America, the Africa Society, Lesotho National Development Corporation and Education Africa USA, as well as the United States Association of Importers of Textiles and Apparel and the American Apparel & Footwear Association.
That leaves Congress. Republican House Ways and Means chairman Bill Thomas isn't likely to put an extension on the legislative agenda in a lame-duck session without assurances from the Democratic leadership. Unfortunately his Democratic counterpart, Congressman Charles Rangel, is on record favoring a replacement for the third-country provision. Mr. Rangel's idea is to give duty-free access to African clothing only if at least 20% of the value-added comes from Africa itself. The idea is to somehow push the region toward buying locally made fabric, creating an integrated industry.
This simply isn't going to work if fabric-making is not to Africa's comparative advantage right now. Meantime apparel makers likely would shift their production elsewhere because of uncertainty along the production chain. This could kill Africa's young assembly business. As one representative of a U.S. apparel importer told us, "You can't imagine how harmful the uncertainty is."
Africa needs whatever jobs it can get while it tries to pull itself up from the bottom rung of the ladder. Apparel assembly is making that possible. Cutting off a source of jobs in the hope that some new industry will spring up strikes us as risk Africans can ill-afford.
THE WALL STREET JOURNAL 8/30/2006
ABOUT AGOA:
The African Growth and Opportunity Act (AGOA) was signed into law on May 18, 2000 as Title 1 of The Trade and Development Act of 2000. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets.
