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Saturday, 24 January 2009

Quick Links

Ethiopia has announced the first sub-sovereign corporate bond aimed at the diaspora. A release by the Ethiopian Ministry of Foreign Affairs says that the bond launched on December 23rd will provide funds to the Ethiopian Electric Power Corporation (EEPCO) for investments which will increase power supply to the nation. Good to see African governments taking a different approach to the diaspora, viewing them as resource rather than an hindrance.

Google and the developing world : Google have launched an SMS service that allows mobile phone users to request and receive information off the web free of charge. The service is currently only operational in Ghana and Nigeria. This could prove to be of huge benefit to growing number of mobile phone users in the developing world who don't have access to an internet connection.

China's GDP Growth Slowed to 6.8% in Fourth Quarter : Bloomberg on the slowdown of the Chinese economy. The economy grew at 6.8%, slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.

Malawi and the Global Slowdown : IRIN on how the global slowdown is sending tremors through our neighbours to the east. Malawi has become the first recipient of the International Monetary Fund's Exogenous Shock Facility (ESF), designed to ameliorate adverse economic conditions beyond a country's control.

Something positive : Remittances by Kenyans abroad, a key source of hard currency for east Africa's largest economy, grew 6.6 percent to $611 million in 2008, according to the Kenya central bank. This is in line with expectation among "remittance watchers" that the crunch will not reverse remittances, but slow their growth. The diaspora are among the most durable source of revenue (Are you listening GRZ?).


  1. Cho,

    I love the quick links, but I seem to always want to comment on more than one, so I am passing the blame to you if this comment seems disjointed and overly long! To be fair, someone like Kafue could handle this in a few sentence, but I have never been one to use a single word where ten will do. ;)

    On the Ethiopian bond issue: Yes! Exactly the right approach, although the lack of diversity in the portfolio might prove to be a problem, choosing fundamental infrastructure such as electrical generation on the Continent is a very good long term bet. Perfect for the fixed income or other low risk portfolio options. Attracting this sort of investor is very much what I feel the continent needs more of. Too much of the experience of Africans with the basic processes of capital investment has been with venture capitalists, who are opportunists by definition, and the least emotionally motivated investors on the planet. G8 (or even G20 now. The term Western really should go away with the rest of the Cold War. Ignore Japan at your own risk. Watch the Dow Jones without the S&P500, AmEx or Nasdaq similarly at your own risk.), retiree populations, schools, small governments and other investors who rely on relatively low but consistent returns bring a whole different class of investor expectations which are better suited to the realistic scenarios of growth for African economies than the high risk, high return venture capitalists have brought so far.

    The central point is to recognize that while diaspora members almost universally want to invest and otherwise contribute "back home," most are too limited by imperfect information to effectively act as direct investors. The standard solution for such a circumstance is the Mutual Fund, but if the goal is to maintain government and/or parastatal ownership (as I believe to be the case in the Ethiopian case), then such a bond issue is the next best thing. I only hope that the government in Addis Ababa does not abuse the trust being placed in them by their diaspora members and eventually default on the bonds. This is a heightened financial risk when emotional factors such as patriotism and compassion are involved in placing the initial investment. The key questions at this stage have to be: Who is rating this bond? What are the disclosure provisions to bond holders (one problem with middlemen in such transactions, especially when dealing with loan based derivative products under current regulatory regimes, is that often the financial circumstance of the bond issuer is not transparent to the ultimate bond holder. This creates a potential for fraud, which is theoretically dealt with by bond rating agencies, but these have proven to be so corrupt as to be entirely unreliable from a prudent investment standpoint. Lack of trusted ratings on debt IS the current global crisis in a nutshell.

    On Google and SMS services: Good for them, bearing in mind of course it is all about getting eyes on advertisements for their bottom line, so while they won't charge to to download the information, they fully expect your cellular provider to charge you for the extra bandwidth to include their sponsored adverts. One of the beauty's of the Google model as applied to this case is that the cellular companies will get the wrath of consumers, rather than the content provider who ensures that you use more bandwidth than you really wanted just to get that information being provided "for free". Remember people, TANSTAAFL, There Ain't No Such Thing As A Free Lunch! Learn it. Live by it. If it looks free, find out how it isn't. If you can't find it, look harder.

    On Slowing of Chinese Growth: 6.8% works alright. The common wisdom I have heard says subtract 5% in China to account for disproportionate distribution of wealth (which is high relative to other countries). Anything under that likely means inflation adjusted incomes for the working class will contract. While that may seem like a lot, I have already explained elsewhere how the minimum return for venture capital companies operating in Zambia like Equinox is double that, around 10% before investors can make a profit. Just like All Politics Is Local (At least for as long as representation is geographically designated, and probably beyond.), similarly All Return On Investment Is Relative. Currently we are seeing investors in mining companies financed by debt-to-equity ratios in excess of 1:1 wondering if they will possibly get a return high enough to cover the spread. It should come as no wonder that the only people interested are those who can obtain zero interest capital loans from their home nation's central bank (i.e. China and India, though the increasing interest displayed by more developed economies like S. Korea and Japan is encouraging.) I'll talk more about the opportunities being exploited in sections of the blog more oriented towards mining.

    On Malawi's economic shocks: I feel for them. If anyone in the region is up against the wall it is Malawi. Relatively dense populations and really no resource to fall back on other than agriculture. Their circumstance more than any other demonstrates the utter reprehensibility of politicians who use hunger as a means to secure voting support. I will suffice it to say that the leadership in Malawi should thank Mugabe every day for being just that much more attractive to the international media, else I imagine that they would find the spotlight most uncomfortable.

    On consistency remittance flows in the face of global slowdowns: I will just begin with an echo of Cho on this one: Are you listening out there?

    [I get rather personal here, stop reading if you don't care, no worries.] The money coming back is only the beginning, once globalization is taken into account. The GRZ seems to lack the understanding, they sound like a parrot when they say, "The Diaspora should invest!" "The Diaspora should promote tourism!" "The Diaspora drained our investment in education!" and worst of all, "The Diaspora should liquidate their assets in foreign countries and come home to invest in Zambia!" OK. Sure. If you want to live in the 19th century. Granted this is roughly the period of development that was robbed from Zambia by colonialism. Granted there are still people alive in Zambia, and certainly in surrounding nations, for whom the daily humiliations inflicted by those empowered by colonial force are still a visceral reality.

    I know that it is all the rage to cite Barack Obama these days. I have no intention of being trite or overly self-righteous, but frankly I think that I am entitled. My American roots lie in Hyde Park, on the South Side of Chicago. While I love where I live now, in the Silicon Forest of the Pacific Northwest, I spent many a cold winter in the heart of African American politics, long before Barack Obama chose it as his home (but not Michelle, she is a Native Daughter, and the experience of her family is the core of the Black Renaissance now coming to fruition in an increasingly non-racial America. I say non-racial because for the vast majority of people under 30 in the country, they just don't understand why it was ever a problem to begin with.)

    I have lived in the shadow of divided American Islam, two city blocks from Louis Farrakhan's Nation of Islam, and four from the response in the memory of Malcolm X. I have attended the services of the various Reformed and Orthodox Jewish Synagogs around there. I have been to the Catholic Masses and the Baptist Revivals. I have participated in Quaker Meetings and Unitarian whatever-they-call-them's. I have appreciated the offered wisdom of the Bahai, the Buddists, and the Native Americans. This is what is wonderful about Chicago. It is both the most self-segregated and the most diverse city in the world. Unlike Manhattan, that juxtaposes Pakistan with Poland in its cramped geography; Chicago is a city without geography (Other than proximity to Lake Michigan, the highest natural elevation is only 10 meters above lake level.), a truly level playing field, where any immigrant community can find an equal footing. As a result the city boasts the largest Polish population outside Poland, as well as the largest Laotian population, it just doesn't matter. I remember when my sister lived in a primarily Lebanese neighborhood on the North Side, and despite being obviously not Lebanese, was completely accepted as a local minority (after all, somewhere in the city everyone is a majority, and that can lead to trouble if you show disrespect).

    What I am trying to say here is that the spirit of politics, which has its origins in the long struggle for African American acceptance and now emerging ascendance, that is currently embodied by Barack Obama is not something which I am just now trying to piggyback my own agenda on to, it is part and parcel of my worldview for decades now. I will also admit, while I am at it, to having a Chicagoan's disdain for the organizational abilities of the Republican Party, which has not been able to win a single elected office in the city for nearly a hundred years. The city is perhaps the best living example of a one-party system functioning by popular acclaim despite all the standard freedoms which result in multi-party competition elsewhere. It works only because being labeled as a Democrat does not remove your independence as an individual lawmaker under the US system (witness today when the Mayor of Chicago (democrat) commented on the Governor's of Illinois (democrat) latest attempt to evade corruption charges: "I've said Cuckoo before, and I'll say it again. Cuckoo!"). In Zambia someone would be trying to remove the Mayor for Party Disloyalty (instead of simply calling it like it is).

    Getting truly effective and transparent bundling of remittance flows to back government sponsored projects (which are necessarily) located in specific political constituencies (such as electrical generation equipment) is going to require the Zambian government to provide reasonable assurance to the Diaspora (Which represents diverse populations within Zambia as well as having diverse cultural influences and investment restrictions from within their host countries.), that the benefits will be fairly distributed throughout the nation over time. Here is where the nation's history is more positive than that of Ethiopia, which is hardly a model of ethnic harmony on the level of Zambia.

    In the US, the upper house of the legislature wields tremendous power by international standards (they make the British House of Lords look like the dilettantes that they are). They are elected state by state, with 2 per state no matter how large or small (a California Senator is elected by over 100 times as many people as a Wyoming Senator), yet they have equal power. More than equal if they are in the minority party, as to even bring an issue to a 50+1% vote requires 60+1% to achieve (It used to be unanimous. Mr. Smith can no longer go to Washington as Capra envisioned.). In the over 150 years since Reconstruction (post Civil War policy implemented by the Army), Illinois is the only State to send African Americans to the Senate (No State has an African American majority, but many have higher percentages than Illinois.), four times now, and three open seats in a row (two by election, one by appointment). This is the testament to the strength and wisdom of the political machine which Obama in effect married into by adopting his wife's 'hood.

    Those of us who have lived there found the whole "association with Bill Ayers the domestic terrorist" thing rather laughable. Hyde Park is like that. I have tried to piece it together, and I think that I lived a few blocks from him too, might have exchanged words or sat on a neighborhood committee, beats me. The guy is active, I've heard the name, but usually in the context of poor kids getting books and decent teachers and classrooms. That's what he's been doing since the days of the Vietnam War, but Baby Boomers rule American politics entirely, so even while new wars are actually happening, they still want to relive their adolescence.

    Obama represents something else, Gen X if you will. A pragmatism that doesn't much care about fame or the myth of "intellectual property" when it comes to popular solutions to popular problems. Most of the things that need to be done now are good for everybody, the people who live in "gated communities" need to wake up and realize that trying to isolate themselves will eventually result in the rest of us dispossessing you. Your property rights are there by popular acclimation, if you stop engaging as a member of the community then your "rights" will cease to exist, however much the ghosts of Gandhi and King and the like will mourn your error. I speak as a member of the "propertied class" when I say we must employ our resources in a manner that serves the needs and aspirations of more than ourselves or risk justified forcible repossession. That said, before you judge any individual capitalist, I strongly urge you to speak with the employees first. If my workers condemn me, I probably deserve it.

    Likewise governments who would seek to capitalize on the Collective Diasporan Angst over the fate of "those left behind" should do so with due caution and appreciation for the innate ability and learned skill of this particular population to access information and check the veracity of what they are being told. Anyone reading this has access to far more than government controlled organs of media, and Soviet-conceived concepts of information control simply do not work. If the Cold War proved anything at all, it proved that American self-selected propaganda beat Pravda single-source official truth every day. The US has proven that anyone who doesn't want to know "inconvenient truths" can easily avoid it by simply tuning in to any one of hundreds of media outlets servicing their immediate pleasure. In modern America, you have to want to know, and then you have to dig.

    A good capitalist is like any other worker, they provide a crucial service within a supply chain that supports value added production of goods and services which are in demand. Any capitalist worth their salt ought to be able to make this case persuasively to the rest of the players in that supply chain at the very least (making the case to potential customers, investors, and regulators may prove equally important). Gathering capital from diverse sources such as Diaspora communities requires an extension of trust which has yet to be proven out in practice by an African government. Unfortunately, by the commentary of those in Zambia on the local news sites I draw the conclusion that somehow people there feel entitled to increased investment flows from the Diaspora, without much mention at all about the existing investment of forex which we all know to be equal to or greater than foreign aid and growing at a faster rate. Just as capital cannot take labour or consumer for granted, the latter two cannot discount capital. It is not easy to accumulate, or haven't you tried lately?

    For the Zambian Diaspora, I think the ideal would be a mutual fund tied to a genuine (i.e. third party accountable and ratable) CEEC programme, which could contribute shareholder capital to otherwise overlooked or underrated domestic enterprises without exposing any one Diaspora investor to undue risk on a single venture about which they have insufficient information to make a direct investment.

    Rant over. Thanks for forbearance, been a long week.

  2. The importance of remittances from the diaspora cannot be overemphasized. Just last week I learnt that migrant money flowing into Kenya is the biggest source of that country's FOREX (bigger than tourism!). That is a more than likely indicator of how big a role Zambians in the diaspora are able to play in national development. However, before we start marvelling at the magnitude of these inflows of funds, it is necessary to consider that people who make these remittances have personal ties with the recipients. This scenario enmtails that a vast majority of funds thus remitted are intended for a specific purpose (to alleviate the immediate challenges faced by families and relatives). These remittances mainly serve as a tool to ensure that funds are allocated to activities that are closest to the senders hearts.

    It goes without saying that remittances for the purpose of investment would only increase if we developed coherent strategies and frameworks through which such funds could be channelled. A mutual fund has been mentioned above (and it does sound like a good idea). We need vehicles whose structure and aims are easy to understand for the average unsophisticated investor. The aims could be tied to new or existing ventures, infrastructural projects (which usually have long term goals), linked to the LuSE Index, Corporate or Government bonds etc. Another idea would be to start a pension fund. One could set up a private pension fund for Zambians in the diaspora. I'd like to imagine that most Zambians lving abroad would one day like to return. Imagine the benefits of having a nest-egg when one needs it most. Such a fund would require a high degree of trust which can be enhanced by making sure it is run by competent persons with a proven track record and high ethical standards (we wouldn't want a Zambian Ponzi or Madoff now would we?).

  3. The idea of bonds financing electricity infrastructure is a good one. However care should be taken that power generation is a profitable activity otherwise it will be difficult to service interest and debt payments on the bonds. For example in many countries, there is political pressure to keep electricity rates low, making power generation unprofitable. Also stealing by hooking unauthorized connections to power lines reduces revenue for power companies. Otherwise bonds could be a good stable source of revenue for pension funds etc.


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