Articles

Iraj frequently appears in numerous financial journals and magazines. He writes a monthly  column in the African Business Times Magazine entitled “Frank Talk”. He is regularly interviewed concerning financial and economic news as well as other matters of public policy facing South Africa at large. Visit the Articles page regularly to keep abreast with all his latest published interviews and articles.

Marikana Massacre: A Lesson for Africa

Posted by on Nov 6, 2013 in Ethics, Politics | Comments Off on Marikana Massacre: A Lesson for Africa

Marikana Massacre: A Lesson for Africa

A year after the tragic Marikana Massacre, where over 46 people were killed, the soul of South Africa remains haunted. Last year September, in this column, I dealt with some of the contributing factors that culminated in this tragedy. As South Africa struggles to come to terms with this appalling incidence and its multifarious ramifications, I believe the rest of the continent has much to learn from it too.   The world over, the history has shown that social development assumes meaning only when the public policy consciously and actively promotes the wellbeing of the working classes and the poor within the society. Focusing on poverty alleviation and the working class welfare does not necessarily mean neglecting the broader interests within the society. In fact taking care of the poorer groups is also partly about securing the sustainability of the well-off classes over time.   This is particularly pertinent for Africa at a time when its growth and development process has gathered real momentum. During such periods of sustained growth, two trends emerge. One is the fact that politicians and policy makers   equate robust GDP growth and its resultant rising per capita income with the betterment of the poor. The second fact is that during periods of sustained growth, the income disparity rises sharply before it moderates over time.  This, the so called “J-Curve” of economic growth dynamics, embodies serious consequences for socio-political stability. Operationally, the shape  of the “J” differs vastly from society to society. The first phase, when income disparities rise, can take many years, even decades, depending on the efficiency and effectiveness of the public sector in the country.   During this period socio-political stability is vulnerable to the rising social discontent. In such times, the relative and visible improvements in the fortunes of the rich together with their conspicuous display of wealth do not sit comfortably with the misery of the struggling classes within the society. In effect, in periods of high growth, the public policy makers and political leaders should be more, not less, worried about the plight of the poor and use the available resources to deal with the underlying structural issues of income maldistribution and poverty trap.   In all likelihood, the Marikana Massacre would not have happened if South Afirca’s political and business leadership remained focused on alleviating the crushing burden of workers’ plight- in this case that of the mine workers. Social and other structural imbalances, inherited from whatever past, do not self-correct. Economic growth generates the required resources and creates the general social receptivity for corrective actions, but sustained and honest political will, underpinned by institutional capability, is needed to effect meaningful improvement in the plight of the poor. Political slogans and ideological sloganeering are dangerous substitutes for a value-based commitment to the removal of the drivers of income disparities.   To the extent that Africa’s current growth momentum is driven by the natural resources sector, South Africa’s experience offers many “how-not-do-lessons”. It is a fact that all over the world, the mining industry is synonymous with the destruction of the environment, land disposition and the use of land potentially useable for agriculture and food production. Such dichotomies have to be managed carefully and responsibly via sound and concurrent environmental rehabilitation management practices.   Globally, the extractive industries have...

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SA Quagmire Plunges the Rand

Posted by on Nov 6, 2013 in Economy, Featured, Infrastructure | Comments Off on SA Quagmire Plunges the Rand

SA Quagmire Plunges the Rand

On May 30th, soon after President Zuma addressed a hastily arranged press conference to deal with South Africa’ falling foreign exchange value, the currency plunged by another 2% breaking through the key level of 10 rand per US dollar- trading at R10.07/US$ at the time of writing! That was a shock to the economy and a culmination of a process questioning the president’s leadership and his approach to the complex issues of macroeconomic management. Whilst the President’s speech did not cause the rapid fall in the currency value, his cabinet’s inability to deal with the sophisticated structural issues of the SA economy has been the root cause of the steady decline in the value of the SA currency over the past few years. Despite the unprecedented and colossal “quantitative easing” in the global financial markets, the SA currency today is over 30% cheaper than when the Zuma administration took charge. In effect, in global currency terms, South Africans collectively are at least 30% poorer today than two years ago, and their average welfare has fallen accordingly.   The SA rand has been sliding for the past few years, after recovering from its rapid depreciation in 2009 which followed the sharp contraction in economic activity due to the global “great recession” of 2007/2008. The primary technical factor contributing to SA currency depreciation has been the steady fall in the country’s export earnings. In addition to the unfavourable global economic conditions and the fall in the price of commodities, the SA economy has been shackled by an interrelated set of structural bottlenecks. The shortage of energy, inadequate rail and export logistics and a perilously inefficient, and at times corrupt, public sector have combined to undermine the export sector and its ability to secure foreign earnings. Meanwhile, imports, especially those items needed for country’s infrastructure expansion programme, have continued apace. Consequently, a growing gap has emerged in the current account of the balance of payments, exceeding 6% of the GDP. In the recent past the shortfall in balance of trade was made up by the constant inflow of capital into South Africa’s equities and the bond markets.   The political economy events of the past year, however, have weighed heavily on the propensity of the domestic and foreign institutions and investors to buy exposure to South Africa and hence on the currency market. To begin with, over the past few years we have had a rising level of social discontent due to the government’s inability to deliver quality services to the communities. The average number of daily service delivery community protests has risen sharply and steadily over the period. In August 2012, a mix of labour relations issues within the mining sector, ultimately led to the tragic massacre of 44 mine workers by the police at Marikana. This marked the beginning of an ongoing violent disruption within the mining sector.  As the GDP contracted and tax revenues declined, the government’s fiscal position in the meantime deteriorated. This aggravated a pattern which had been building up since 2008. These trends together with a steady decline in the overall confidence level within the economy culminated in October 2012 of the first ever downgrade of the country’s sovereign credit rating since the inception of the new democratic dispensation in 1994.   This vicious circle of...

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University of Pretoria Public Lecture on the Bahá’í Faith

Posted by on Nov 6, 2013 in Ethics, Featured, Spirituality | Comments Off on University of Pretoria Public Lecture on the Bahá’í Faith

University of Pretoria Public Lecture on the Bahá’í Faith

On 14 March 2012, Iraj Abedian delivered a public lecture at the University of Pretoria entitled: “Social Development and Religion: A Bahá’í Perspective”. The lecture had been organized by the Dept of Theology of University of Pretoria. All theology students were obliged to attend as it was part of their academic curriculum.  In addition other interested individuals were free to attend. The lecture was publicized on the university campus. In addition to the students from theology, political  science and sociology, the following high ranking university academics also attended the lecture:   Professor  Johan Buitendag, The Dean of Theology, Prof. Antony Melck, Executive Director of the University of Pretoria, Prof.  Niek Schoeman, the Dean of the Faculty of Economics and Management Sciences, Prof. Maxi Schoeman, Head of Dept of Political Sciences Prof. Alfonso Groenewald, Dept of Theology;   Counsellor Christopher Songok together with NSA member Mrs Freshteh Samadi were present too. Also present were two members of the LSA of Tshwane, as well as Miss Khwezi Fudu of Bahai Diplomatic Office of the External Affairs Directorate. Members of Pretoria University’s Bahai Students Association as well as some Bahai students from Wits University participated too. All in all, an estimated 600 people were present at the public lecture. The lecture explored the role of religion in the progressive evolution of socio-economic development on earth from a Bahai perspective. Explicit references to the Bahai Faith, its theological and socio-economic teachings were made right through the lecture.  The analysis presented argued that “….in nearly all spheres of human activity the dominance of the materialistic approach has caused systemic distortions with deep social, political and economic impact.” The reality is that : “The debate about religion in the public sphere, however, has been driven by the voices and actions of extreme proponents on both sides — those who impose their religious ideology by force, whose most visible expression is terrorism — and those who deny any place for expressions of faith or belief in the public sphere. Yet neither extreme is representative of the majority of humankind and neither promotes a sustainable peace”. The lecture concluded that: “Clearly, humanity stands at a crossroads of convergence or divergence between religion and social development. From the perspective of the Bahai scriptures, the concurrent transformation of the individual, the institutions, and the society is vital for the effective and constructive processes of social development. In this process, religion has a pivotal role to play.”   As part of their academic programme, all 250 theology students were expected to write a short ‘project report’ on the Bahá’í Faith based on the lecture. A short write up on the lecture is posted on the website of the university of Pretoria’s Theology Dept at the following URL address:   http://web.up.ac.za/default.asp?ipkCategoryID=4721&ArticleID=10564 The full transcript of the lecture is available from the National...

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Modern Societies and Ethical Values

Posted by on Nov 6, 2013 in Ethics, Featured, Politics | Comments Off on Modern Societies and Ethical Values

Modern Societies and Ethical Values

Nowadays, the world over, a tangible and troubling rift has emerged between the prevailing socio-economic ‘formal (professed)’ as opposed to ‘informal (practised)’ ethics. For example, in the business sector business executives and corporations formally subscribe to the ‘codes of good corporate governance’. Their annual ‘glossy’ reports are decorated with “impressive evidences” of their socially responsible citizenship. Yet operationally they do not hesitate to collude and/or abuse their market powers. The current “horse meat saga” in Europe and its counterpart in South Africa are cases in point. The conduct of global bank executives in Europe and North America since 2008 has left little doubt about their lack of ethical values. Ironically, their corporations, and hence their shareholders, have been convicted to pay billions of US dollars in penalties. Evidences of price fixing amongst pharmaceutical companies, construction companies, cement manufacturers, bread producers and steel manufacturers have been high profile cases over the past few years in South Africa. Sasol, South Africa’s most celebrated petrochemical corporation, has been heavily fined, both locally and internationally in the EU, for its extensive anti-competitive practices. The country’s banking sector is also accused of malpractices and a report in this regard is yet to be made public by the Competition Commission. The banking sector is alleged to be exerting every pressure to halt its publication. The cellular phone companies are likewise accused of collusion to fleece the consumers in South Africa. There are also allegations against tyre manufacturers in the country, and so on….. South Africa is by no means an exception! The gap between the formal and informal ethics within the government sector is even more pervasive and pronounced. Frequently, government ministers and departmental executives espouse ‘global best practices’, and yet operationally in their organizational and managerial behaviour there is little evidence of the values, standards, or practices that conform to their formal statements. Whilst the political leaders often express commitment to serving the people, the experience of the citizens speaks of a contrary and divergent conduct.  Duality of the values is equally prevalent in labour unions, the media sector and other social structures and organisations. In the recent past there has emerged much publicized and high profile global cases of value duality within the institutionalized religious establishments too. Sporting personalities and organizations likewise have been proved to be polluted by value inconsistencies. Pervasive duality of values within the society leads to a vast array of social ills. The most visible of these is the spread of corruption in both the private and the public sectors. Disturbingly, the prevalence of corruption is no longer a phenomenon confined to any particular continent, region, country, culture, religion or developmental status of the society. There are convincing and growing evidence that the facts as well as the allegations of corruption in the society have gradually tarnished the internal and external perceptions of the state operations as well as the political authority of the governments. As a result, social trust in governments has been considerably undermined.  Whilst the economy and the society at large suffer the consequences of widespread corruption, the poor within the society bear the brunt of its impact. After all, the poor are far more dependent on the performance of the public sector. The growing gap between the rich and the poor over the past decade...

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Africa’s Triple Challenges

Posted by on Nov 6, 2013 in Development, Economy, Infrastructure, Politics | Comments Off on Africa’s Triple Challenges

Africa’s Triple Challenges

Nowadays Africa is the darling of the global investment community. Report after report highlights the impressive actual growth and the promising prospects for the continent’s economic performance over the medium to long term. The so-called “dark continent” has transmuted into the “bright continent”. And, that is most welcome. However, for these sentiments and opportunities to be converted to sustainable socio-economic developmental momentum a number of key issues need clear recognition and effective solutions. Three of them loom large in this context.   First and foremost, it is critical to recognize that there is a difference between the requirements of the short and medium term economic performance and those of the long term sustainable development. It is a fact that most African economies are growing from a low base at high annual rates. This is because at the early stages of growth, opportunities for investment are plenty and capital flows are insensitive to the critical role of economies of scale. However, when these short term- the so-called “low hanging fruits”- are exhausted, capital flows increasingly respond to market size, economies of scale in production, and the comparative advantages arising from well-designed and integrated infrastructural logistics- something that more often than not requires a great deal of transnational coordination and operation. In this regard Africa is way behind. Neither its political nor its institutional structures have moved far beyond the colonial mindset! The historic fact of Africa is that the colonial past left the continent with too many sub-optimal independent territories, most of whom lack the absolute or relative economies of scale.  On top of it blind nationalism and even raw tribalism are still excessively prevalent on the continent. Yet, many countries are way too small a market to generate internal sustainable growth momentum for the medium to long term. In a world where increasingly global competitiveness matters, this is a real challenge that Africa has to overcome- and need to do so urgently. Even if political boundaries are kept, agreements have to be reached to facilitate investment and industrialization policies that are based on solid regional integration platforms.   Second, and related to the above, is the need for industrialization across a set of industries where Africa, and sub-regions of the continent, have sustainable or dynamic comparative advantages. Once again, for such a strategy to be successful, economies of scale are vital. Strategically, the global factors are in favour of Africa’s industrialization. The continent’s resource base in some key sectors is rich, global capital markets are awash with “cheap capital”, and the required technologies are easily accessible. Examples in this regard include mining equipment industries, the petrochemical complex, food and agriculture industries, and clean energy generation. This favourable structural configuration is only the necessary condition. The sufficient condition, however, is to put in place the required long term framework that creates ample and evident economies of scale for investments in transnational logistics, market access, human resource development and capital market institutions that guarantee the medium to long term developmental sustainability. Importantly, Africa cannot replicate the industrialization templates of Europe, US, Japan or South-East Asia. The dynamics and requirements of industrialization differ at different times for different regions. In this context, the national policies within Africa are unlikely to succeed unless and until they are integrated into the continental or sub-continental...

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Normalizing Economy Facing Geopolitical Risks

Posted by on Nov 6, 2013 in Economy, Featured, Infrastructure, Politics | Comments Off on Normalizing Economy Facing Geopolitical Risks

Normalizing Economy Facing Geopolitical Risks

Five years after the ‘great recession’ of 2008, the global economy is showing the early signs of ‘back to normality’. Chances are that 2013 will mark the tipping point. Normalization in common economic jargon means a global economy which is growing at or around its long term growth path and is subject to cyclical variations together with regional divergences in economic performance. Clearly, the global financial and banking crisis is by and large over- thanks to the gigantic bail out by many governments and central bankers. The housing market is also gradually returning to normality. Even the EU political debacles surrounding the euro and its associated political economy issues appear to be managed down. Predictions of the EU split have proven no more than false alarms or hasty predictions by those who have clearly under-estimated the collective intelligence and commitment of the European leaders to stay the evolutionary course of their political integration.  Whilst the banks are back in a fairly sound financial status, the same could not be said about their respective governments. In many countries, financial interventions by governments have left the national fiscus in fairly vulnerable state- that is if not already bankrupt. Countries like Ireland, Spain and Portugal are in dire fiscal conditions, whilst UK, USA and France teeter on the verge of fiscal vulnerability.   All said and done, it is by now clear that since August 2008 the unprecedented measures taken by national governments and the central bankers, mostly in the OECD member countries, have averted a total global economic and financial collapse. This has been achieved, to a large measure, at the expense of the poorer groups within the society. Because when the government finances are short, it is the poor who ultimately bear the brunt of it, especially in the short term.  With job shedding in the public sectors and drastic cut back in public subsidies and welfare budgets, the societies experience all kinds of social tensions. Political leadership in such a milieu faces a major credibility deficit. Lack of confidence in political and social leadership in turn undermines the societal cohesion, destroying much hard-earned social capital.   On the economic front, one of the direct effects of the monetary policy stance has been a sustained low interest rate policy worldwide and a global capital market operating in a liquidity trap.  Such prolonged configuration has many political economy side effects, two of which merit special attention. One is the rise in speculative activities diverting resources from real economic enterprises. Consequently, constructive and job creating ventures are substituted by financial transactions that offer high short term return on capital.  Predictably then even when economic growth is registered, the level of employment creation is either stagnant or at a much lower scale. Whilst this is a worldwide phenomenon, for the emerging economies it entails profound socio-political risks. Some of the emerging economies may even find the consequences too problematic- politically speaking. In such conditions, countries such as Argentina, Russia, South Africa, India and Nigeria are in danger of degenerating from an emerging economy status to a “sub-merging” state, however gradual it might be. The second, and as concerning, effect is the rapid rise of income inequality at both national and global levels. The combined effects of these development lead to socio-political instability.  ...

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South Africa’s Falling Fortunes

Posted by on Nov 6, 2013 in Economy, Infrastructure | Comments Off on South Africa’s Falling Fortunes

South Africa’s Falling Fortunes

For the first time since the birth of democratic South Africa in 1994, the country’s economic fortunes have taken a sharp and substantial negative turn. In part due to the prevailing global economic conditions and in part, and more critically, as a result of domestic political economy issues the country’s growth has fallen consistently from an expected 3.4% a year ago, to the current projected growth of less than 2.5%.   However,  the two consecutive downgrades of the country’s  international credit rating, by rating agencies Moody’s and Standard & Poor, had much less to do with the falling economic growth per se as opposed to the structural political and socio-economic issues facing a government that appears unable to deal with the root causes of the complex issues at hand. Today, South Africa’s global rating is only two notches away from “the junk bond status”. This is a serious indictment on government’s ability at a time when Africa’s growth is on the rise, its development taking roots and many African countries enjoy rising international creditworthiness.   Over the past three months, a series of wildcat strikes have brought the country’s mining sector to its knees, and has spread to other sectors such as transport and manufacturing activities. The complexities of the socio-economic and political issues facing South Africa cannot be underestimated. As the most unequal society as regards income distribution, the country is further burdened by widespread poverty and deepening youth unemployment problem. More accurately, the country’s youths face a pervasive “unemployability problem”, thanks primarily to a dysfunctional and mediocre public education system.   Yet despite nearly two decades of evidence, the government refuses to account for its failures in the education field. Successive ministers of education, and governments in general, have offered a blend of dismissive political postures and defensive reactions to justify the failure of the education system. Yet South Africa boasts one of the most effective private schooling system.  Despite considerable public funding, a systemic poor public education generates graduates who are unemployable.   More broadly, the machinery of the state is incapable of dealing with the requirements of a fairly modern and complex economy, and even much less able to provide public services to the majority of the population that relies on the effectiveness of the bureaucracy to have education, health, and basic municipal services. Persistent denial on the part of the political leadership to acknowledge the deep rooted structural fault-lines within the public sector, and the ineptitude to take effective action have further compounded the frustrations and dissatisfaction of the masses.   The working classes in general, and the mine workers in particular, have been left in a precarious space. Whilst a number of highly connected political leaders of the ANC have amassed unprecedented fortunes via their connectivity to the government authorities, the working conditions of the mine workers have been left in the limbo. Neither the state bureaucracy is able to use its fiscal revenues to provide basic amenities for the workers, nor do the mining houses take seriously their commitments to their social and labour plans as required by their mining licence conditions. The dysfunctionality of the local government sphere complicates the situation even further. Moreover, the alliance between the union leaders and the ANC political leadership disarms the unions from consistent and...

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Marikana Massacre: Causes and Consequences

Posted by on Nov 6, 2013 in Ethics, Politics | Comments Off on Marikana Massacre: Causes and Consequences

Marikana Massacre: Causes and Consequences

On the 16th of August 2012, when President Zuma left for the SADC meeting of Heads of States in Mozambique little did he know that this day would mark the darkest day of his presidency. A few hours after his departure from South Africa his government’s policy special unit mowed down 34 workers in cold blood and injured another 78. This was a tragic climax to six days of a wildcat strike by Lonmin’s rock-drillers who had demanded a minimum monthly wage of R12500 (approximately US$1510), leading to a total death of 42, inclusive of 2 policemen. In the annals of SA history, this will go down as a massacre that new South Africa never imagined possible under its democratic constitution. Dubbed as the Marikana massacre, the appalling incidence is the single most lethal use of force by South African security forces against civilians since 1960’s Sharpville massacre of the apartheid era.   The horrific events at Marikana have some multifaceted and deep political roots. Some aspects of it began over a decade ago within the National Union of Mineworkers (NUM), and eventually culminated in the formation of the new union called Associated Mineworkers and Construction Union (AMCU). The top leadership of AMCU is hell bent on diluting NUM to insignificance! This was an intra-union but fierce fight with political undertones. However, in the current landscape where within the ANC alliance there are serious splits, and various groupings are contriving and conspiring to remove those in power, this has become a politically convenient platform for those opposed to NUM, and by extension opposed to President Zuma. It is noteworthy that NUM and its president are staunch supporters of President Zuma.  AMCU has been hard at work to raise the stakes at every opportunity over the past six months. AMCU activities have been mostly in the provinces of Limpopo and Mpumalanga, more recently spreading to the NW Province and the Northern Cape. Meanwhile, the anti-Zuma camp within the ANC alliance has been hard at work to strengthen AMCU.   With this in the background, Lonmin mismanaged its labour relations processes in the run up to August 10th, giving bonuses and allowances without proper communication, and totally oblivious to the underlying tensions between NUM and AMCU.  This gave AMCU a “golden opportunity” to agitate and undermine NUM, Lonmin management, and set the stage for a full-on confrontation. Despite evident signs, Lonmin remained insensitive to the bigger picture, resting assured that having Cyril Ramaphosa as their key high profile shareholder and director will save them! This was a fatal error of judgement. Expectedly, Julius Malema emerged as the champion of the striking workers, challenging the leadership of President Zuma and Cyril Ramophosa- both of whom had been instrumental in expelling him from the ANC Youth League last year. Malema had invested heavily in the previous two years to strengthen AMCU and set himself up as the champion of the working class, especially the mine workers.   Whilst this was going on, the police too made some elementary and fatal errors.  Chasing workers on foot in such a highly charged environment is sheer incompetence and indicative of the lack of basic training in crowd control. .As a result, two policemen were hacked to death in the events prior to August 16th, and then...

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Financing Africa’s Infrastructure Backlog

Posted by on Nov 6, 2013 in Economy, Infrastructure | Comments Off on Financing Africa’s Infrastructure Backlog

Financing Africa’s Infrastructure Backlog

Africa’s recent economic profile is synonymous with infrastructural bottlenecks; be it energy, water, transport logistics(roads, rail, port facilities and airports), human skills, or local government utilities as well as a general and substantial gap in the quality of public services- a critical transversal (soft) infrastructure that influences the overall productivity of all other infrastructures.  The monetary value of the required infrastructure runs into hundreds of billions of US dollars. In South Africa alone this is estimated to be US$450 billion! It is worth noting that this estimate is more than double the current SA government’s Total Gross Loans of US$200 billion as of April 2012.   In this milieu, it is understandable that much pressure is placed on the political leadership to act. And, act they must do. Yet, in so doing it is vital that we are alert to the socio-political significance of the task ahead, and the fatal risks that we need to manage carefully and methodically. The current economic and financial malaise prevailing in Europe and USA provides valuable and relevant lessons for the approach that we need to adopt in meeting the national and continental infrastructural needs. The key lesson is this: not all infrastructure finance should be put on the public sector balance sheet- be it directly on the national fiscus balance sheet or indirectly via public enterprises investments. In brief, when the national government takes on the debt (and the risk) which belongs to the private sector, it ends up crippling the nation.   Different types of infrastructure need different forms and mix of finance. Much of the continent’s current infrastructure backlog is in the form of “near pure economic” infrastructure, such as dedicated rail lines for exporting coal, iron ore, manganese or other commodities. All such pure or near-pure economic infrastructure should be financed via leveraging the private sector assets and/or expected future revenue streams. Almost no public sector exposure should be built into this component of the portfolio of infrastructure backlog. At the other end of the spectrum is social infrastructure such as public schools, public health facilities and basic urban infrastructure. These should be financed solely via public finance and/or user charges in the case of urban amenities.   Within this framework care should be taken that neither haste nor ideological misconceptions distort the critical judgments needed for a sound structuring of the finance mix appropriate for each infrastructure project. Hard lessons from the prevailing European and American fiscal errors of judgment could help avoid financially expensive and socially consequential outcomes. Lumping all the projects into one category called “infrastructure” and seeking suitable finance based on a ‘one-size-fit-all” approach is bound to prove fatal- financially and fiscally speaking. The challenge is not just about how much ‘tax’ and how much ‘debt’. The equity-debt mix is secondary to the question of who should be financing the project in the first place.   In addition to appropriate financial structuring and funding, a productive and sustainable national/regional infrastructural programme needs other key requirement too. There are five key alignments that should be put in place if Africa’s infrastructure investment is to turn out productive and sustainable.   Based on the lessons of the past century of economic development in the West and the East, the following components of the macro-financial framework need alignment...

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Now Europe Prints Money

Posted by on Oct 24, 2013 in Economy | Comments Off on Now Europe Prints Money

Now Europe Prints Money

Under the relentless pressures from the European economic structural crisis, the European Central Bank (ECB) has eventually caved in, and has joined the US Federal Reserve Bank and the Bank of Japan to print money, alternatively dubbed as “quantitative easing”, or long term refinancing operations (LTRO).   The ECB has pulled the European economies from the brink of a severe credit crunch, and a potential fiscal collapse in a number of EU member countries. The short term benefits are almost self-evident. European and global investors are relieved. And, the European political leaders have a sigh of relief, at least for now.   Technically, of course, the ECB’s action is nothing more than a simple measure of “buying time”. In many respects, the ECB’s action is very similar to the US Fed’s action in the period immediately after the 9/11 attack on New York.  Allan Greenspan introduced an unprecedented and prolonged monetary easing in the US. For sure, he averted a possible recession, or even depression, in the US and by extension in the world economy. Yet, within seven years, the compound effects of a prolonged monetary easing evolved into a phenomenal financial bubble. Asset prices rose considerably, financial institutions in particular ignored some of the basic rules of credit extension, and investment bankers amassed wealth like never before. To put this into perspective, in 2000 the global GDP was USD 32 trillion; by Q3 of 2008 it had grown to USD 62 trillion. These nominal figures clearly reflect that the world economy expanded at an unsustainable rate.   By August 2008, the bubble in the financial system burst and with it the super-cycle of growth came to a sudden and painful halt. One of the oldest and most respected investment banks, Lehman Brothers, was declared bankrupt and many others followed. The global economy went to a sharp decline, some regions more than others. In many respects the global economy has not yet fully recovered.   Now, it is Mr Draghi of ECB who is following in the footsteps of Mr Greenspan. The reasons are very different in Europe 2012 than in USA 2001. The economic and financial consequences may not be that different. The short term focus however is on saving Europe, averting a Greek fiscal collapse, and providing immediate socio-political relief.   Mr Greespan’s strategy to buy time also led to a number of structural problems in US and elsewhere. Mr Ben Bernanke, Mr Greenspan’s successor, intensified the money printing in US. The Bank of Japan had been doing the same for nearly two decades. Loose monetary policy by these three major central banks caused a range of domestic and international fault lines. In Europe in particular, ‘cheap money’ caused a ballooning of government debt, exacerbated by the bail outs offered to the ailing banks in UK, Italy and France in 2008 and 2009. By 2012, the US federal fiscal debt stood at US$ 16 trillion and rising. At the time of writing, the US is in the midst of a fiscal and economic dilemma. This has also become the number one election issue in this year’s presidential elections.   Both in Europe and US, there are deep structural issues that need lasting solutions. No amount of short term palliatives in the form of central bank monetary easing...

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