Kenya’s General Election: Why, for the good of the country, Raila Odinga must win

There has been a lot of negative coverage about the forthcoming gen elections in Kenya on 9th August 2022.

The Economist’s article below a few months back is typical:

https://www.economist.com/middle-east-and-africa/2022/04/02/kenyan-voters-face-an-invidious-choice-in-august

It fairly cites a lack of a viable choice and focuses on the cynicism of Kenyan politics; Where politicians change allegiances and political parties – usually one-election vehicles for whatever frontrunner is in current fashion – more often than they change their expensive imported Versace and Armani suits; Of which they can easily afford a warehouse-load on a Kenyan politician’s ludicrously-inflated salary when compared to even those in the most powerful countries in the west.

Sure, the curse of tribal politics is nowhere more visible than in Kenya on the continent. A curse that always comes at the cost of actual viable social and economic policies that are almost an afterthought and hard to discern between the two current frontrunners – Raila Odinga and William Ruto:

Both candidates aspire to “bottom-up economics”, whatever that actually means, and a vague promise of subsidies on fertilisers. Ultimately they both inspire nothing more than apathy in the Kenyan electorate.

But that is missing a trick.

Read more

As someone who witnessed the Kenyan election violence first-hand; Violence that broke out at the end of 2007 after disputed elections back then that were clearly stolen from Raila and that saw over 1000 killed, if the country is to ever begin to overcome its tribal strife, then Raila must rightfully ascend. And do so in free and fair elections.

Ruto, who comes from the fourth-largest Kenyan tribe – the Kalenjins – might cite Julius Nyerere as one of his heroes because of his success at largely ironing out tribal divisions in neighbouring Tanzania (a great achievement in and of itself, but done at the cost of failed, socialist-orientated policies such as nationalisations and forced farm collectivisations that destroyed the country’s economy) and hopes to do the same for Kenya, but a victory for Raila would do more in a split second than any lofty words (and probably only token ones at that from Ruto) ever could.

For as de facto leader of the third largest tribe in Kenya – the Luos who make up most of western Kenya – Raila symbolises that whole tribe’s frustrations at having been largely excluded from the highest echelons of power since independence. Something that has been exclusive to the largest tribe, the Kikuyus and the Kalenjins in President Moi from 1978-2002, .

More than any other politician that I saw while covering the election violence in 2007/8, Raila always seemed genuinely weighed most by the whole terrible affair.

There are continued misgivings amongst a wary electorate – especially by the largest tribe – the Kikuyus – that he will be dictatorial and attack the very democratic values whose erosion lead to his own exclusion from power. But in the lead-up to this election, he has bent over backwards to court and humble himself in front of the very people who have again and again treated him with suspicion. There is no evidence that he would lead in this way. In fact, out of the three politicians who have dominated Kenyan politics since the election violence, Kenyatta, Ruto and Raila, he is the only one not to have been prosecuted by the ICC for the violence back in 07/08.

Whether he wins them over remains to be seen.

By giving his approval, current President Uhuru Kenyatta took the first step in trying to break that cycle of prejudice that has forever burdened Kenya, since independence with essentially the sidelining of the entire west of the country.

In my (humble) opinion, it is now time for the Kenyan electorate to follow suit and help smash the vicious cycle of tribal nonsense once and for all. Raila has done more and suffered more than most politicians in Kenya – tortured himself under President Moi.

It is time to give him the chance that he rightly deserves at the top slot and in so doing, take one more positive step towards ending tribal conflict and prejudice in Kenya.

Transitory or not, the Great Inflation Debate is really missing the point…

The supply-side mayhem caused by the pandemic and war in Ukraine that sparked the current bout of global inflation for the first time in a generation, is almost certainly a dry-run for the persistent and much higher inflation levels we were always likely to face later on in the decade.

Read more

With the most recent economic data that paints an emergent picture of a fast-cooling global economy, a collective and audible sigh of relief could almost be heard from economists the world over. Or rather those who had always claimed that inflation was transitory and the result of momentary supply-side bottlenecks, caused by a pandemic and the Russia-Ukraine war. 

With markets now more preoccupied with concerns over a coming global recession, commodity prices, very much the trigger and main driver for inflation today, have fallen dramatically last few weeks. From copper, a keenly-observed benchmark for the fate of the global economy as a whole that fell by over 20% since May, to oil that is almost back to pre-Ukraine war levels to even wheat that has fallen over 40% since end-June with much of the world’s supply still stuck in Ukraine because of a Russian blockade in the Black Sea. It seems inflation might be a passing phase and those same economists who were so wrong not long ago, might be right after all (if not a year late with their predictions).

Notable amongst them is 2008 Nobel Prize winner, Paul Krugman.  Citing the well-regarded St Louis Fed Reserve inflation indicator that forecasts inflation 5 years ahead in U.S, and that has dropped sharply from a high of 3.34% in August last year, he tweeted:

“5 year breakeven at 2.48.  Out of control inflation expectations my…asset.”

Krugman couldn’t resist a dig at the opposing “inflationistas” as they are known in (geek) economists circles, lead by the likes of Larry Summers, former US Secretary of the Treasury who had long-predicted the dawn of persistently high inflation as far back as the ’08 GFC.

“stagflation narrative is really collapsing,”  Krugman argued, and taking aim at the opposing camp he tweeted, “waiting years for the chance to posture sternly against runaway inflation, and really, really won’t want to back down.”

These vertiginous slides have lead to the likes of Albert Edwards, co-head of global strategy at Société Générale, a French multinational investment bank, to even posit that we may be about to enter a deflationary period in the next six months. 

While such predictions might come true, to be frank, the short-term picture is still murky. As even Edwards admits, the jury is definitely still out whatever the likes of Krugman would have us believe.  Commodity prices might have only taken a temporary hit for example as a result of a lull in the war in Ukraine as both sides take a moment to replenish depleted ammunition and morale and normal market movements, and could well begin to rise again in autumn.  Certainly, with a complete shut-off of Russian gas on the horizon for Europe in the coming months, and the war heating up once more, a price rise is definitely not out of the question.

And it is not just commodity prices.  A lot of other economic indicators clearly show that inflation has spread to other parts of the world economy and might be a lot more ingrained than previously thought.  The real worry is that expectations of future inflation will drive up wages in an already over-heated labour market close to full employment, that in turn forces companies to raise prices on consumer goods and services to pay for those same wage increases and that in turn causes another bout of wage inflation and so on and so forth.  To back this up, the most recent employment figures in the U.S for non-farm payroll in June defied expectations, where 372,000 jobs were added and that was way above the 265,000 predicted.  A labour market with a historically low unemployment rate of 3.6% could easily fan the flames and drive systemic inflation that outweighs any fall – momentary or not – in commodity prices.

But all this is really, really missing the point. 

Whether inflation is transitory right now or not, one thing is for sure:

It is a sign of things to come.

It is a sign of a high-inflation and possibly stagflationary world that will be hard to contain later in the decade.  The clue as to why can be found in a simple innocuous-looking sentence at the end of a recent UNCTAD summary looking at the record global trade levels today ( https://unctad.org/news/global-trade-hits-record-77-trillion-first-quarter-2022 )

“Other factors expected to influence global trade this year are continuing challenges for global supply chains, regionalization trends and policies supporting the transition towards a greener global economy.”

To understand why the future path for inflation, and therefore the wider global economy might be bleak, one needs to first understand why there was a low-inflation environment in the immediate pre-pandemic era and as far back as the ’08 GFC (Global Financial Crisis) that seemed to defy classical economic theory.   In the face of historically low interest rates and sizeable QE (central bank “quantative easing” programmes of buying up assets with newly created reserves, thereby increasing the money supply) and a red-hot labour market later on in the 2010s, inflation hardly budged from is low slumber. In the U.S it averaged around 1.8% during the last decade.  Under such conditions, inflation, as conventional wisdom goes, should have been rampant but wasn’t. 

The answer it turns out could be whittled down to one word:

China

If research reports from the likes of the well-respected NBER (National Bureau of Economic Research), a non-partisan NPO and the IMF is to be believed, then the main reason for the low-inflation puzzle was nearly all down to cheap manufactured goods coming out of China.  NBER was able to show that in the service industry by contrast, inflation averaged closer to 10% in OECD countries in the last decade, as most services are domestic and largely not globalised (to ask a rhetorical question, how many people in the west go to multinational Chinese supermarkets or banks?).

With supply chain resilience rather than efficiency currently becoming increasingly important, repatriating supply lines, nearshoring, and so-called “friend-shoring”, that is moving supply chains to politically-friendly and stable countries that are more closely aligned to western ideas on democracy and human rights, is all the rage. 

If goods manufacture were to move en masse away from China and were repatriated back to OECD countries for example, then the argument goes that it would reintroduce inflationary pressures on countries that would become more sensitive to traditional economics, like the good old days of boom and bust in the 70s, 80s and 90s.

Indeed, moving supply chains away from China had been slowly gathering pace even before the pandemic and the war in Ukraine.  And it was not just driven by geopolitical and human rights considerations, but rather by automation, that makes advantages in low-cost labour increasingly redundant when considering supply chain efficiency.  This was coupled with the fact that wages in China had been steadily rising anyway, eating away at this particular comparative advantage.

But while global trade – as a percentage of GDP – has been falling slowly but surely, to say that there has been a dramatic shift away from China right now would be an overstatement to say the least.  In fact, a closer look at the figures paints a far more complex picture.  One where U.S agricultural exports to China shot up by more than double between 2020 and 2021 from US$17 billion to over US$36 billion.  And one where Chinese companies seem to be moving their own production to East Asia to avoid U.S tariffs and general scrutiny and even (although largely inchoate) moving them to Mexico to take advantage of the free trade agreement between Mexico, U.S and Canada.  And also where out of 300 U.S companies in China itself, 60% have stated they have increased their investment compared to 2020.  Even Apple that relocated a substantial portion of its manufacturing to Vietnam and away from China, still sells 40% of its total final products back to China according to Business Insider.

The overall trend worldwide – whatever the excited chatter in media, academic circles and even boardrooms might be – has not been to re-shore, friend-shore or even nearshore, of which there is little evidence. But rather it has been to diversify supply lines and build up inventories (a build-up amounting to 1% of global GDP by the world’s largest 3000 companies since 2019 according to analysis conducted by the Economist magazine). For all their talk, across OECD countries, manufacturing as a share of GDP still makes up only 13% of thr total – an all-time low.

So does this then mean business as usual once the current crisis passes? Back to the low-inflation environment and a flood of cheap goods from China?

Not so fast.

A deeper examination and the trend is definitely trending slowly but surely towards huge changes and coming upheaval in supply chains, even if they haven’t been realised already.  What diversification of supply lines and the building up of inventories actually points to is a proverbial “wait and see” policy for many multinationals, rather than undertake the intense trauma of supply line relocation until completely necessary.  But plans afoot all seem to point to coming change.

New Foreign Direct Investment (or “greenfield FDI”, meaning completely new investment and not such things as M&A, mergers and acquisitions, for example) in China has fallen dramatically.  In the mid-2000s, 20% of all new investment was going towards China. That figure is now only 5%.

Whereas not a single OECD country was a net dis-investor in China not 8 years ago, now at least 1/5 of all rich countries are mostly disinvesting in the country. 

And while trends seem to be creeping away from China, one issue looms over all.  One that might turn a trickle into a raging torrent:

And that of course is Taiwan.

If the trauma of economic disassociation with Russia following the invasion in February appeared traumatic, this will be nothing compared to the upheaval that a confrontation over Taiwan will trigger.  Most analysts still underestimate the re-introduction of geopolitics into their forecasts, not seen on this scale since the Cold War and the disruption it can cause.  Increasingly the overriding factors now are no longer just economic.  Since in fact Brexit and Trump in 2016, they have become more and more political and will continue to do so.  A return to the 1990s where simple efficiency considerations were all that was required when planning global supply lines does not seem imminent. 

But when all is said and done, what will mostly drive a wave of nearshoring and even re-shoring for most companies will still be the profit motive over the long-term, even in the face of geopolitical shocks to the system.  And even here there are whispers from around the world of near and re-shoring success stories.  Where a drive towards more resilient supply lines may also be the most efficient in some cases.  In the car industry for example, vertical integration, where the company controls all elements of its supply lines, from the mines for raw materials, to manufacture, to even the car showrooms has been driven largely by the success of Tesla. 

Even in the country where I reside in South Africa, there has been a notable success story in the clothing industry in The Foschini Group (TFG).  The company has defied all expectations and recorded market-leading net revenues by repatriating most of its production from places such as China, Bangladesh and Myanmar.  Using modern technology, TFG was able to make its production more sensitive to domestic demand by using latest digital tech and ultimately by bringing production closer to home.  A dying or dead industry once said to have been destroyed by China seems to be more than alive and well at this moment and will likely drive TFG’s competitors to do the same.

What such glimpses of success worldwide show is that nearshoring and even repatriating supply lines doesn’t necessarily always mean an inability to compete.

But ultimately n the long-run, even if it does bring higher net revenues for some multinationals, this trend can only cause higher inflation – or rather inflation more sensitive to each country’s domestic macroeconomic situation.  For example, TFG might be able to be more efficient, but if energy costs shot up in South Africa, or the rand was devalued, all factors completely outside its control, then it doesn’t matter how efficient its production line are, prices will probably go up.

But of far more significance for inflation will be over-zealous government intervention.  As success stories such as Tesla and TFG multiply, governments around the world will not be able to resist the temptation of jumping on the bandwagon.  They will try and aid entire industries within their domestic economies in an attempt to bring back meaningful production and crucially, jobs.  The ultimate goal being to reverse the decline of their respective middle classes and the source of so much upheaval in rich-world politics at the moment. 

To assist in repatriating supply lines, many governments have reintroduced once unfashionable industrial policies.  From funding R&D to protecting “strategic” sectors, that since the pandemic are not limited to defence and computer tech but have vastly broadened in scope, industrial policy is making a comeback with a zeal.  A remarkable fact is that over 200 countries representing over 90% of GDP now have some form of industrial policy, and the main thrust has been since 2019.

As great as protecting and nurturing domestic industries might seem, governments historically have not had a good record at its success.  To say the least.  Apart from their past failures though not boding well for the future, the real problem right now is that most countries are all focused on the same list of industries, namely A.I, clean energy, semiconductors and quantum computing.  This will almost definitely lead to large inefficiencies, and in the medium-term will lead to higher input prices and consequently higher inflation. 

The coming energy upheaval: If you thought higher oil and gas prices after the Russian invasion of Ukraine were bad. You ain’t seen nothing yet…

Add to all that, is the coming upheaval in energy markets, the lifeblood of world economies. 

Put simply and brutally, the transition to greener energy sources has been left way too late and will be tumultuous to introduce yet another understatement to proceedings.

There is a great article written recently by Ted Nordhaus in Foreign Policy magazine that is far more comprehensive in its scope and a must-read for those interested in how the Russia-Ukraine war has impacted our collective drive towards greener economies: “Russia’s War Is the End of Climate Policy as We Know It.”  ( https://foreignpolicy.com/2022/06/05/climate-policy-ukraine-russia-energy-security-emissions-cold-war-fossil-fuels/ )

In it, Nordhaus veers towards the positive and argues that a renewed focus on energy security that has been thrust back into the limelight by a “fossil fuel superpower gone rogue in Eastern Europe” might do more to focus minds and transform our economies to greener energy sources than unrealistic and idealistic hubris by the climate movement ever could before it. 

But, there is also enough alarming evidence to point to the opposite occurring; Where current geopolitical turbulence has already seen many countries recoil from their net-zero obligations.  They might all plead that it is temporary, but in the current crisis, where, by all accounts we are in urgent need of a dramatic and immediate reduction in carbon. Any pause, however momentary, will push us all closer to that ultimate tipping point of 2C above pre-industrial levels sooner rather than later.  As this happens, it will just lead to ever more geopolitical turmoil in an unholy cycle downwards.  Germany for example right now is attempting to pre-empt Russia from cutting off the gas taps completely by restarting a fifth of all its coal-powered plants that were recently shut down.  And there are murmurs amongst usually environmentally-ardent Democrats in the U.S to ease opposition to the infamous Keystone Oil Pipeline from Canada. 

All the turmoil will lead to ever more unstable and therefore sustained higher energy prices.  In the long-term, the underlying trend too is towards disinvestment from the sector that will just add to the inflationary pressures in energy.  As even Nordhaus admits, “most of the low-cost, easily accessible oil and gas fields have been developed, while new production is costlier to reach and harder to extract.”   The renewed focus on the Trans-Saharan gas pipeline that will bring gas in from Nigeria to Morocco and then onto the European market for example, shows a trend towards increasing reliance on unstable sources that will ultimately only bring more mayhem and higher prices in the long-run. 

Adding fuel to the proverbial fire is the ever-more effective disinvestment lobby whose campaigns target bank funding and insurance company backing of oil and gas infrastructural projects.  The increasing success of such campaigns is best exemplified by the current one against the East African Crude Oil Pipeline started by BankTrack in 2018, an NGO that campaigns against dubious private commercial bank activities. Noble and essential as these campaigns are, nevertheless the simple truth is they will supercharge energy inflation as they become more widespread.

All in all, in the medium-term both higher energy costs due to upheaval in the energy sector and fundamental changes in supply chains that are only now coming to fruition and likely to accelerate later in the decade, will lead to higher inflation.  Something that the current upheaval is but a taste of.  And as the IMF recently pointed out, the effects of even just technological “economic geofragmentation” as they likje to refer to it, will be about 5% for many countries – both rich and poor. 

With all this in front of us, it is hard to see any other conclusion than higher inflation and possibly negative growth rates that will give us a world of structural stagflation coupled with ever-increasing geopolitical upheaval. 

The Cape 1000 is Africa’s answer to the Mille Miglia

This article appeared in the U.K travel site Detour on 31st March 2022 – https://detour-roadtrips.com/home/the-cape-1000-is-africas-answer-to-the-mille-miglia

Inspired by Italy’s most epic rally, the Cape 1000 is four days of petrolhead perfection in beautiful wine country.

At the foot of the iconic flat-top Table Mountain overlooking Cape Town, a group of excited, mainly male, sports and vintage car enthusiasts from all over South Africa gather at the V&A Waterfront Hotel.  The expansive dockside development is the scene for the inauguration of the Cape 1000, a first-of-its-kind vintage car rally inspired by Italy’s Mille Miglia, voyaging deep into Cape Town’s scenic hinterland.

Continue reading “The Cape 1000 is Africa’s answer to the Mille Miglia”

For its own good, SA must take the regional lead against Russia

This article appeared in the Opinion and Analysis section of the Sunday Times Daily (SA) on 27/02/2022

In the cacophony of diplomatic noise that followed the Russian invasion of Ukraine, SA’s swift statement released by the department of international relations and cooperation (Dirco) hours after the start of the invasion and calling out Russia directly went largely unnoticed.

Unique among Brics, its underlying tone was notably different in its directness. The change in tone was even noticed by the Russian embassy which, in its usual cold, curt and cutting fashion, responded on social media with the simple sentence: “Kindly refrain from interfering.”

Continue reading “For its own good, SA must take the regional lead against Russia”

Russian-Ukrainian war may be the boon SA has been waiting for

The article appeared in the Opinion and Analysis section of Business Day (SA) on 27/02/22

The biggest crisis in Europe since World War 2 has sent financial markets on another dizzying roller-coaster ride over the past week. The conflagration in Ukraine has had economists ripping up their forecasts and sent them back to the drawing board.  Predictions were already battered by the uncertainties brought on by the Covid-19 pandemic and subsequent supply-chain bottlenecks. 

The dominant consensus that is emerging is one of doom and gloom for Africa, with rising prices of crude oil and food staples, especially wheat, feeding into existing instability. This is ominous given the number of military coups already witnessed recently in and around the Sahel region. One need not look too far back in history — just a decade, to 2011-2012 — for a period when a spike in prices caused civil unrest from Nigeria to North Africa and stoked the Arab Spring.

Continue reading “Russian-Ukrainian war may be the boon SA has been waiting for”

A conversation on Greece’s recent diplomatic foray into Africa on Pantelis Savvidis’s (ERT3) Greek web channel “Anixneusis”

Speaking yesterday (Sunday 16th January 2022) with esteemed colleagues, Pantelis Savvidis, Retired General Ilias Leontaris, Nikos D Kanellos, and journalist Sakis Moumtzis on the weekly Sunday morning podcast “Anixneusis” – the free-to-air Greek web tv channel, administrated by Pantelis Savvidis – previously on ERT3.

We spoke about the validity of Greece’s new diplomatic push into Africa. The historic ties between the continent and the Greek people and ultimately whether it was cause for optimism and a true renewal in relations or just another false dawn.

https://youtu.be/iN4goCTmSns

Continue reading “A conversation on Greece’s recent diplomatic foray into Africa on Pantelis Savvidis’s (ERT3) Greek web channel “Anixneusis””

A conversation with Shuaibu Idris, a development economist from Nigeria, about the future of infrastructure spending in Africa

On the 16th December 2021, I had a fascinating chat with Shuaibu Idris, a Nigerian development economist and MD of Time-Line Consult, a Lagos-based financial consultancy and management firm, about the state of infrastructure spending and general investment levels on the continent for an article for the weekday South African media outlet, Business Day ( https://www.businesslive.co.za/bd/opinion/2021-12-23-george-philipas-infrastructure-spending-in-africa-is-at-a-crossroads/ )… Thought I would share his insightful extended comments.

Continue reading “A conversation with Shuaibu Idris, a development economist from Nigeria, about the future of infrastructure spending in Africa”

Infrastructure spending in Africa is at a crossroads

An edited version of this article appeared in the Opinions and Analysis section of Business Day (South Africa) on 23/12/2021: https://www.businesslive.co.za/bd/opinion/2021-12-23-george-philipas-infrastructure-spending-in-africa-is-at-a-crossroads/

The pandemic has certainly not been kind to investment prospects in Africa.  Lead by a slowdown in infrastructure investment from China, foreign direct investment (FDI), already heading south before the onset of the pandemic, fell by 18% in 2020.  More ominously, greenfield investment, investment in new projects, fell precipitously by 63% according to the Global Investment Trends Monitor released by UNCTAD in Jan 2021, the largest regional fall on the globe last year.  The proverbial onslaught culminated with the announcement earlier this month at the recent Forum of China-Africa Cooperation conference (FOCAC) in Dakar, Senegal that plots Sino-African relations for the next three years, of a vertical drop in investment from China from US$ 60 billion to US$40 billion. 

Continue reading “Infrastructure spending in Africa is at a crossroads”

Failure shows SA Companies should reconsider African strategy

An edited version of this article appeared in the daily weekday ed of Business Day (South Africa) on 18/10/2021:

https://www.businesslive.co.za/bd/opinion/2021-10-17-george-philipas-failures-show-sa-companies-should-reconsider-african-strategy/

There has been a flurry of activity by South African companies on the continent recently.  From Vodacom’s successful bid as minority partner for the Ethiopian telecommunications license to the Memorandum of Cooperation (MoC) between South African Airlines (SAA) and Kenyan Airways (KQ) that is intended to sow the seed for a pan-African airline.   In fact, South African companies have made great inroads into Africa over the last two decades or so and seem to dominate the African business space.  According to a 2018 report by the Boston Consulting Group, South African companies make up 32 out of the 75 African multinationals active on the continent.  And according to a recent 2021 fDi Intelligence report, a leading research agency and a division of the Financial Times, South Africa is the second biggest investor on the continent from Africa or the Middle East, behind only the UAE. 

But there is another side to this unquestionable success, one punctuated by regular missteps and blunders that have been repeated to the great detriment of a significant number of South African companies in Africa. 

Continue reading “Failure shows SA Companies should reconsider African strategy”