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2018: Managing the pace of change in Africa – the year ahead

Publishing Date : 23 January, 2018

Author : MARCUS COURAGE

The success of African governments is increasingly defined by their ability to manage the pace of social and political change. Africa’s burgeoning youth populations are flocking to the cities, embracing new forms of communications and media, and vocally demanding greater accountability from their governments.


Young and aspirational societies are above all hungry for jobs, but they also expect better public services and more evident social justice. This tide of expectation from the grassroots makes change inevitable. But while governments cannot stop it, they can still shape the pace and direction of change.


The African continent today is characterised by two types of nations - those led by reform-minded governments with the political will to deliver on their development strategy and overseeing robust growth driven by their private sectors; and those that resort to window-dressing efforts at reform while clinging to power through a reliance on patronage. In 2018, I anticipate more bumps in the road for African leaders who fail to respond to the clamouring of their young populations. But I also see the emergence of a new generation of leadership, like ours in Botswana, which has grown responsive to the needs and expectations of its citizens.


The new administrations of Cyril Ramaphosa in South Africa, Joao Lourenco in Angola, and Emmerson Mnangagwa in Zimbabwe, while facing notable political and economic challenges, will all strike a more reformist and accountable tone than their predecessors in 2018. I anticipate Ramaphosa will make bold cabinet selections in South Africa to reassure the capital markets, step back from some of President Jacob Zuma’s more controversial recent populist policy interventions, and importantly, push for investigations into some of the alleged graft which has rocked South African politics in recent years.


This will not be an easy task, such is the divided nature of his party and the fragile state of the economy. But he will look to assert his authority and strike a note of change, while upholding aspects of the ANC’s radical economic transformation agenda, which remains so critical to South Africa’s long-term socio-economic rebalancing post-apartheid.


Lourenco is also making waves in Angola as he seeks to assert his authority over the state apparatus and dilute the lingering influence of the dos Santos family, who have dominated Angolan politics for the last three decades. From his new position of growing strength, I anticipate that Lourenco’s reforms will move beyond personnel changes to actually tackle some of the monopolies that thrive in Angola’s heavily politicised business landscape. It remains to be seen however, whether such actions constitute part of a coherent development agenda, or whether they are simply a means of wrestling control of key patronage structures from one faction to another.


In those countries where leaders have sought to push back and resist the forces of change, political risks will increase, as was evidenced recently in Zimbabwe. In perhaps the most prominent example of this dynamic, President Joseph Kabila’s dance around the international community in the DRC will continue to fuel a political and security crisis in 2018 that carries risks of escalation. Kabila will continue to play to the gallery on his commitment to elections, but I see this as a means to detract from his entrenchment in power. This dynamic will continue to foment unrest and violence as the country limps along to an inevitable transition.


Between populism and pragmatism
Linked to this same demographic pressure for reform and progress, governments are having to make tough decisions on how they run their economies, make policy and fund their development plans. With commodity prices still somewhat subdued, donor streams proving unreliable, and China taking a more restrained approach to the continent, in the last two-to-three years African governments have been forced to place a greater focus on economic diversification, debt-raising, fiscal reform, and efforts to broaden the tax base.


Such reforms are much-needed to strengthen the macro-economic sustainability of many countries. But they also carry structural risks, and notable opportunities and risks for business, which need to be carefully evaluated. With regards to structural risk, IMF chief Christine Lagarde in December 2017 sounded the warning bell over resurgent public debt levels in Africa, with external debt in particular vulnerable to foreign currency appreciation noting the likelihood of further interest hikes in the US and Euro-area this year.


After a swathe of debt write-offs in the 2000s with the launch of the Heavily Indebted Poor Countries Initiative (HIPC) in 1996, African debt is again on the rise, with many governments using commercial and conditional borrowing to plug persistent fiscal and budgetary gaps. On a positive note, unlike in previous debt cycles, much of the focus of recent borrowing has been to fund capital spending on infrastructure and developmental projects.


However, many governments have also proven either reluctant or unable to trim the public wage bill, cut back on subsidies and reduce wastage in the system by pioneering robust public-sector reform. This has proven evident in the challenging IMF negotiations around concessional reforms to enable extended credit facilities in countries like Mozambique and Zambia.


While 2018 is unlikely to be the year when the tide turns on African debt, we expect this issue to come increasingly into focus with several bond issuances nearing maturity, and the long-term sustainability of debt in countries like Guinea, Ghana and Kenya being called into question. Fortunately, African governments appear more engaged with the IMF and other lenders than they were during the stubborn debt crises of the 1980s.


But public-sector reforms will prove a bitter pill to swallow, and with governments under pressure to maintain spending and preserve jobs, the debt mountain is more likely to swell than deflate. This issue could well come back to bite, and donors are unlikely to countenance a second bailout along the lines of HIPC, underlining the long-term structural risks this presents if spending is not contained.


On the other hand, the move towards economic diversification – particularly in resource dependent economies – presents huge opportunities to business. These range from reforms and incentives to open untapped or under-productive sectors like mining and agriculture, to the launch of Special Economic Zones or ring-fenced industrial parks like the export-oriented manufacturing hubs being developed in Zambia or Ethiopia. Such moves are unlocking significant potential for both companies and government, with an aligned benefit from wealth and jobs creation, and increased fiscal contributions.


Yet in other areas, fiscal reforms and efforts to broaden the tax base come with risks for business. Internal revenue generation in Africa is lamentably low due to a combination of poor checks and systems, high levels of informality in the economy, low tax rates, and corruption. The drive to address this issue forms an important step to build more sustainable economies.


Yet while improving tax collection systems and broadening the tax base to capture untaxed areas is likely to be a positive move, we are also likely to see a struggle play out between the need for pragmatic fiscal management and the desire to secure easy populist wins which carry political capital. In particular, where tax authorities target the low-hanging fruit of existing tax payers to drive up tax collection, this is likely to carry risks to business and in some instances, have a detrimental effect on economic activity.


In 2018, we are likely to see hikes in excise taxes on consumer goods that are seen to carry health and environmental impact – notably drinks, plastics and tobacco products – and the telecoms sector will also face similar pressures as a perceived cash-cow for government. While environmental and health issues will be used as the rationale, often the real driver of fiscal change will be short-term revenue-raising requirements. And while the foot has been taken off the pedal in terms of resource nationalism in the extractives sector after a wave of fiscal and regulatory reform in the last decade, tax and regulatory enforcement – including stringent sanctions for non-compliance – is likely to remain a feature for this strategic sector, where local content and beneficiation will be the primary government focus.


Businesses will need to be alert to these risks, which can originate domestically or result from contagion stemming from ‘influencer markets’ like South Africa which wield significant regional influence. While the risk of contagion from the more radical forms of policy that has been pursued in recent years in countries like Zimbabwe or even Tanzania is limited by the realities of the political-economy in other markets, tax and regulatory pressures are likely to become a growing challenge for business, requiring robust and proactive engagement to manage the impact on operations and the bottom line.

Marcus Courage, CEO of Africa Practice Group, a pan-African strategy and communications consultancy with offices in London, Gaborone and six other African capitals. www.africapractice. com

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