Sovereign Funds---to have or have not

Norway has one, Chile has one, Qatar has one. Sovereign wealth funds (SWF)seem to be the new must-have accessory for African governments—especially those with freshly discovered oil and gas reserves. In the past three years Angola, Ghana and Nigeria have all set up funds. A string of other countries including Kenya, Liberia, Mozambique and Tanzania are planning to follow suit. Generally, the goal is to put aside and invest surplus revenues, a bit like a pension fund, so they can be used when finite resources such as oil and gas run out. SWFs also act as fiscal stabilisation mechanisms, giving governments access to liquid assets they can draw on in times of need—crucial for resource-dependent countries vulnerable to commodity price shocks. They can also channel investment into specific projects like infrastructure development. A well-managed SWF boosts credit ratings and lowers borrowing costs. It also raises a country’s profile: where there is money to invest, bankers and financial publications will queue up to know more.

But can countries like Angola and Nigeria, with high child mortality rates, low life expectancy and entrenched poverty, justify holding oil revenues out of their state budgets to put them into separate funds for a rainy day?

“Our government tells us this fund is about saving for a future generation,” said Elias Isaac, director of the Angola office of Open Society Initiative for Southern Africa. “But how can you even think about that when such a large portion of the current generation is living in poverty without access to basic services?”

What are the guarantees that SWFs will be insulated from the endemic corruption found in resource-rich African countries? Without full transparency and oversight, he warns, funds set up to benefit a country can turn into vehicles for patronage, corruption and squandered wealth. The Libyan Investment Authority (LIA), set up in 2006 by the country’s former dictator, Muammar Gaddafi, and run by his inner circle including his sons, is often cited as an example of how a mismanaged SWF can do more harm than good. Full details of what went on at the fund have never been disclosed. (Accounting firm Deloitte valued the LIA assets at $66 billion, according to an April 2014 Bloomberg news article.) However, accounts published since Mr Gaddafi’s death have reported a costly mix of corruption and incompetence by fund officials as well as external managers hired to invest its assets.

Angola’s fund was launched in 2012 and claiming assets of $5 billion, it is sub-Saharan Africa’s second largest after Botswana’s Pula Fund. From day one, the inclusion on the board of José Filomeno de Sousa dos Santos, the eldest son of Angola’s president of 35 years, has overshadowed the Fundo Soberano de Angola (FSDEA). Angolan opposition parties are not only displeased with the involvement of Mr dos Santos, who is now chairman, and his close business associates, but also with the lack of public consultation that preceded the FSDEA’s formation. “Members of Parliament were not given an opportunity to discuss the political scope of the fund or view its legal framework,” lamented Alcides Sakala, a spokesman for Angola’s largest opposition party, the National Union for the Total Independence of Angola. “The result is a lack of transparency in the management of public affairs,” he added. “While there is no separation of powers these abuses of power will continue, encouraging corruption, embezzlement of public funds, and money laundering.”

The most pressing issue for all African funds is the plummeting price of oil. After years of surplus, Angola is staring at a deficit of as much as 14% of GDP for 2015 due to the collapse in the price of crude, the country’s main source of revenue. In January the government in Luanda announced a public hiring freeze and other austerity measures. It has ignored calls from the IMF to include a stabilisation tool within the FSDEA. So, while Angola has a hotel school that promises to create jobs in the long-term, for now it must borrow on the global markets at elevated prices to control its deficit.

Does it make sense to borrow money at a higher cost than the return on investment? Or is it wiser to put cash aside for future generations while slashing public spending for those in the present?

http://www.dailymaverick.co.za/article/2015-04-08-analysis-do-sovereign-wealth-funds-make-sense-for-africa/#.VSXWLfmUeJY

 

Land Grabs And Flawed Assumptions

Can land grabs by foreign investors in developing countries feed the hungry? So says the press release for a recent, and unfortunate, economic study. It comes just as civil society and government delegates gather in Rome this week to negotiate guidelines for “responsible agricultural investment” (RAI), and as President Obama welcomes African leaders to Washington for a summit on economic development in the region.
At stake in both capitals is whether the recent surge in large-scale acquisition of land in Africa and other developing regions needs to be better regulated to ensure that agricultural investment contributes to food security rather than eroding it by displacing small-scale farmers.

The recent study paper will not advance those discussions. It is the kind of study that gives economists a bad name. Economists like the one in the oft-told joke who, shipwrecked on a deserted island, offers his expertise to his stranded shipmates: “Assume we have a boat.”
In this case, these seemingly well-intentioned Italian economists came up with the dramatic but useless estimate that global land grabs could feed 190-550 million people in developing countries. The heroic assumptions they needed to get there should have stranded them on a deserted island, because they make no sense in the real world.

• Assume land grabs produce staple food. (Mostly, they don’t.)
• Assume such assumed food is consumed domestically. (Overwhelmingly it’s exported.)
• Assume the calories they might produce go to hungry people. (They don’t, they go to people who can afford them.)
• Assume calories are all that’s needed to nourish someone. (They aren’t.)
• Assume productivity-enhancing investments on such land would be made for an assumed market of hungry consumers. (They wouldn’t, the hungry are no real market at all because they have no effective buying power.)
• Assume the grabbed land didn’t displace anyone from producing food. (According to the same data relied on by these economists, most projects have displaced farmers.)

Perhaps the most absurd assumption, though, is that the governance mechanisms exist, at the national, international, or corporate levels, to manage the surge of investment we’ve seen since the food price spikes of 2007-8. Trust me, they don’t, which is why the UN’s Committee on World Food Security is meeting in Rome this week to negotiate the RAI guidelines.
Those negotiations have proven contentious, with developing countries and civil society groups demanding that land rights be included in the guidelines. Some rich country governments, such as that of the United States, resist such measures saying they interfere with the development of markets, which they see as the ultimate solution to … well … everything.

In Tanzania, those land markets are going fast and furious, fueled by government programs to make large tracts of land available to foreign investors. Many have gone for biofuel crops like sugar and jatropha, the oilseed tree that has proven to be a spectacular failure all over Africa. The governance failures include not just the taking of 20,000-acre tracts of good land, based on false promises to local villagers, but then the failure to return the land to those villagers when the project collapses.
In Kisarawe, Tanzania, that land instead was simply subleased by the bankrupt Sun Biofuels to Mtanga Farms, a Tanzanian company that has disavowed any responsibility to fulfill the promises made by Sun Biofuels when it secured the land in the first place.

Interpreting the data from that flawed land grab study a little differently, the researchers show, in effect, that in Tanzania 3.1 million people additional people could be fed by just giving the land to small-scale farmers. Or, more realistically, one could increase by 25% the caloric intake of 12.4 million people who don’t get enough to eat now. Invest in the land and, according to these researchers, one could do the same for 20.4 million people.
That would go a long way toward wiping out rural poverty in Tanzania. It doesn’t look anything like a “land grab.”

from here

Eviction Of Thousands Into Poverty Is Just Another Externality

Africa needs ‘ethical land policies’

By Polycarp Machira from The Citizen

Dar es Salaam. African countries should have ethical economic land policies to save the continent from land conflicts, international land conference was told on Wednesday.

African land needs clear stewardship for the benefit of both current and the future generations. This should put into consideration interests of small-scale farmers by involving them in any decisions made on the use of land. The observation was made by Dr Camillu Kassala from Christian Professionals of Tanzania Research Fellow, Interfaith Standing Committee for Socio-economic Justice and Integrity of Creation, when presenting a paper at a conference in Dar es Salaam.

He said land holds the social-cultural attractions of many African communities; therefore forceful eviction of locals from their land in the name of investments interferes with social identity of people. “There is a lot more that needs to be considered before any decision to evict people from their land is made, but apparently our government does not even give the locals opportunity to express their wishes,” he said.

According to Dr Kassala, the government is never neutral when it comes to acquisition of land by investors and only thinks of how to remain in power.

He accused the government of always working in the interest of influential members of the private sector who often give irrational demands.

For his part, the University of Dar es Salaam lecturer, Dr Ringo Tenga, basing on his previous research, said land grabbing is very much evident in Tanzania as the government tries to downplay the reality.

Same old story. Local people seen as externalities - they get in the way of the few to make money. Tanzania, just one of Africa's many separate countries, is typical of the recent frenzy of land acquisition by foreign agricultural and investment companies, all primarily interested in reaping profit from the land either from food crops for export, from crops for biofuel production or simply investment for future profit. The common thread is disenfranchisement for many small farmers and total loss of home and access to livelihood. The scale is enormous and growing annually - just another part of capital's accumulation process. Nothing but world socialism will put an end to such atrocities.
JS