Ignoring the 99%

In certain sensitive, geopolitical regions around the world, heads of state are sitting tight, even though their time up. From Russia through Syria to Senegal, we see the same pattern - 21st century governments deciding to ignore the loud, though unclear, demands of the 99% and reinforcing their political positions against the dictates of the state, utilizing pseudo-democratic tactics to advance their sinister goals. We can expect the socio-economic faultines that have been developed over the last four years to morph into deeper crevices with the potential for great social upheaval unlike anything we have seen post-recession.

The Implications of Global Central Banks' Quantitative Easing

JP Morgan's recent submission gives us cause to think about the COST of bailing out the world's financial system from the spillover effects of the economic crisis of 2007-2008. Below is a chart released by a JP Morgan commodity analyst showing the assets on the balance sheet of the G-4 central banks as a percentage of their national economic output. This "G-4" includes the Federal Reserve of the United States, the Peoples' Bank of China, the European Central Bank and the Bank of Japan. The co-ordination among the central banks has been remarkable.  

Implications:

1. We can expect the spot price of gold and more importantly gold futures to hit records highs as investors and speculative players hedge against inflationary tendencies going from 2012 to 2013. Gold ETFs will experience substantial volatility this year too. 
2. Apart from the recent Galleon case (and on a lighter note MF Global), no major bank chief has been indicted for directly playing a role in engendering the recent crisis. And so the central banks continue to fan the embers of the MORAL HAZARD problem. To avoid a crisis of confidence and more importantly a re-enactment of the bank run that characterized the GREAT DEPRESSION, these reserve banks may have acted rightly, but its been four years since the recession. On the flip side, in managing the crisis in the Nigerian context, the Central Bank of Nigeria set up a "bad bank" to purchase the toxic assets of the banks and went further to take punitive steps to hold the bank chiefs responsible for their actions.
3. Energy costs are going to increase going forward as the action of the central banks of "flooding the world with cheap money" combine with the system-wide reinforcing effect of geopolitical conflict in some oil-producing states. The oil producers, in a bid to shore up their purchasing power against the volatility of the US Dollar, will, without doubt, hike energy prices. The positive feedback effect will only serve to make the entire financial system even more volatile. 
4. Net oil-importers such as Kenya and Uganda will most likely have a painful period ahead. Last year, the value of the Kenyan shilling fell more than 20%. Kenya has made efforts to secure a $143 million loan from the International Monetary Fund to hedge against this threat. They can only go so far. 
5. Net oil-exporters such as Nigeria, in the absence of a resurgence of Niger Delta violence, might see a surplus in revenues from oil this year given that the National Assembly is adjusting the 2012 budget oil price benchmark to $75 - way below the volatility range shared generally by commodity analysts. However, the windfall may be of little effect if the upsurge in food imports (growing at 11% annually) is not pared.  
6. The global equities market has had a generally good start this year - one of the best in years. No thanks to global Quantitative Easing. But as interest rates remain high in emerging and frontier markets, the bond market might have the upper hand this year, trumping the equities markets again. In my native Nigeria, the efforts of the management of the Nigerian Stock Exchange (NSE) to boost the stock market capitalization to pre-crisis levels may not come to fruition this year. Sadly. 
7. Following from the widening interest rate differential between the developed and emerging/frontier markets, the pace of carry trade will accelerate even further this year, in the absence of substantial fluctuations in exchange rates. As speculative capital continues to besiege the shores of emerging markets such as China for example, any effort by the financial authorities to reduce the surplus external position (comprising the current and capital accounts) by increasing imports may not yield the necessary results.  

As for Greece, I assume they have already defaulted and the market discounting mechanism has factored that in as usual. Who will argue that a debtor has not defaulted on a debt commitment if he's asking for some haircut from his creditors? 

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Historical: My thoughts on the Chinese Premier's Financial Times article of 23rd June, 2011 [uncensored]

The Chinese Premier, Wen Jiabao's article can be accessed here. My thoughts (November 14th 2011) below:

- I believe that he should have made a distinction between the parts of the world where inflationary tendencies are HIGH and where he sees them LOW (due to reduced consumer spending and confidence). That distinction is very important as it guides monetary policy in any clime. As is obvious from the current state of affairs, inflationary tendencies are dangerously LOW in the US and the Eurozone (still under watch though) ---> the US Federal Reserve maintained the interest rate @ 0.25%, while the ECB lowered theirs by 50 basis points to 1.25%. All they are trying to accomplish is to help SMEs access to credit facilities and boost consumer spending. But apparently, as we can see, that is not enough. But the story is different in emerging markets like China. Inflationary tendencies are HIGH there; the after-effects of the stimulus package that the Chinese government initiated (similar in principle to the Quantitative Easing [QE] initiated by the US Fed). 

- He said that his government was going to rein in government spending and in effect reduce deficits to somewhere below 3% of GDP and external debt to 60% of GDP. Simultaneously he intends to adopt a loose fiscal policy, to support a policy of economic development through domestic demand. This double move is CONTRADICTORY. Cutting government expenditure is a sure way to reduce fiscal deficits, but increasing infrastructure spending cancels out the gains. The overall effect might be ZERO change in fiscal policy. My view is that China can handle deficits to some degree for now. Inflation has been hovering around the 6% level since this year, and a contrasting mixture of loose fiscal policy and tight monetary policy will serve to keep inflation in check. China's main worry as it grows economically will continue to be INFLATION. Its also a factor that African economies have not been able to handle that's partly the reason it's difficult to reconcile GDP growth in Africa to SOCIAL improvements (the Ugandan and Kenyan currencies have been brutalized this year, causing interest rate hikes to 23% and 16.5% respectively, to shore up their values. Of course this hasn't helped much). The 4th part of my series on Afro-Chinese matters covers this to some degree, though I focused more on the demographic trends rather than inflation. 

- All in all, China has been historically effective in managing inflation. According to Wen's article again, the Chinese strategy to keep inflationary tendencies LOW is to increase IMPORTS. This is good as the SUPPY of non-China goods and services (to the Chinese) will INCREASE, driving costs and prices LOWER. But as data from tradingeconomics.com suggests to me, balancing export volume with import volume will present itself as a major challenge too. [Another story to watch is the new Free Trade Zone (similar to NAFTA) deal being proposed by the US President for the Asia-Pacific region --> 8 countries have indicated interest but China is yet to make a move on that]. 

Let's go back to the topic of the Chinese Premier's article, it says: "How China Plans to Reinforce the Global Recovery". After reading this article, I believe Wen Jiabao made the following errors:

 - he did not understand the IMPLICATION of the TOPIC of his article; because if he did, he would know that it doesn't make sense that your main thrust for reinforcing global recovery would be 'IMPORT VOLUME INCREASE' when developed countries who have the greatest capacity to export to China are still mired in the after-effects of the credit crunch and business confidence is still relatively LOW.

- the article which as stated by the Financial Times is a rare move by CONSERVATIVE China, was written as a DEFENSIVE TACTIC in response to the developed world's call on China to re-evaluate her growth model --> China has been maintaining her fixed exchange rate regime and only allowing it to appreciate slowly (in essence favouring her exports on the international market). China's present currency level is seriously UNDERVALUED. It should be worth more than it presently is. Intellectual Property theft has also been another issue against China altogether. The last paragraph of his article reinforces my argument. Besides the tone of the article to me is that of a CHINESE-ECONOMIC SCORECARD. Like when Nigerian governors celebrate their 100 days in office. It falls short of addressing very critical issues (again, the date of the article is June 23, 2011). 

#OccupyNigeria: Between 'Strike' & 'Protest'

As 2011 rounded up with the fall of the 40-year-plus totalitarian Libyan regime, many observers reached the conclusion that such a revolution would wreck the fragile social fabric of sub-Saharan Africa if it ever happened to occur in the 'frontier' region. That scenario is currently being tested as Africa's biggest oil exporter - Nigeria - is currently under 'occupation', ironically, by her own citizens.

However, there are clear divergences between the triggers that sparked the Arabian Spring and the Nigerian case. In north Africa, these massive uprisings were mostly initiated by the citizens with decades of suppression and sinister containment of the citizenry by government serving as the main catalysts. In Nigeria, on the other hand, the protests - actually a strike action by the labour unions - can be safely approximated to knee-jerk reactions to the removal of subsidies on Petrol Motor Spirit by an 8-month old government, even though it may have served as an opportunity to protest against the wider corruption, excesses and inefficiencies of government. This divergence is particularly noteworthy because it is inconceivable that Nigerians may be asking for the resignation of President Jonathan - a duly elected leader - under a year into his administration. The #OccupyNigeria movement is increasingly becoming laced with an unfortunate lack of focus and concentration on the issues at hand. As is obvious from various sections of the nationwide protests, political opponents of the Jonathan administration have seized the opportunity to appeal to the fancies of the protesters. A growing challenge has become the dynamics of managing the protesters by the leaders of the labour unions. It is also remarkable that the more common word on the streets is now PROTEST, not STRIKE, even though it was initiated under the legal framework of the latter. The strike action initiated by the national labour unions is slowly slipping out of the control of the union leaders. I perceive that a call to end the strike by the union leaders may not necessarily end it since a critical reference point has been developed in the mind of the common protester - the Arab Spring mentality - which essentially usurps the initial motivation for the mass action. The situation is becoming more fluid and getting potentially difficult to place a timeline on when and at what point the protest will really end. 

The Subsidy Quasi-Revolution

Nigeria may be likened to a foster child who has been rotated through a sequence of irresponsible parents and when 'seemingly' responsible parents come along, the child ceases to believe that his interest and welfare has become the priority of the new parents. With a reference to typical human behaviour, that reaction is perfectly normal.

Unfortunately, Nigeria will have have to choose between the devil and the deep blue sea under the current circumstances. Many Nigerians protesting under the idealistic inclinations of the 'Arab Spring' fail to realize that historically, REVOLUTION tends to redistribute POVERTY more than it redistributes WEALTH...

Selective Cleansing

In the on-going onslaught on the Nigerian state, the perpetrators of violence and mayhem have maintained an obvious MO; waste the masses, bomb social and religious institutions, but RAID the banks. Apparently they must be in short supply of the necessary funding to keep their engine of indoctrination and violence running. The raiding of the banks is also not as frequent as the destruction of human lives. That systematic destruction needs funding. 

By engaging in SELECTIVE institutional cleansing, it is clear to the average Nigerian that an agenda more complicated than the headline news tells the citizenry is being carried out, with the intelligence of the malicious activities increasing linearly as the days go by.

Africa's Data Problems

Obtaining reliable data from many places on the African continent is still a big challenge. Economic data published by the UN and other related agencies give workable estimates, yes, but to achieve near-uniform development across sectors, a breakthrough in data collection, organization and analysis is imperative. The failure of a majority of state institutions of National Planning to achieve remarkable results in sub-Saharan Africa has its foundations in the fractured framework of data handling and analysis in African nations. Consequently, where there is no dearth of political will, the governments still lack the crucial information they need to drive sustainable growth in many African states. We cannot continue to rely on the estimates of international agencies to come to the knowledge of ourselves and our environment. This protracted dependence will do no good to African states in the long term. Africa must 'own' and drive the growth she wants. Nigeria provides an example. 

The Nigerian economy has been projected to exceed that of South Africa, the continent’s largest economy, in a little over a decade (though it might happen sooner with the current plans to use the reference year for computing Nigeria’s real GDP as 2008). A cursory survey of both economies brings an apparent disparity to the fore: the informal economy in Nigeria is largely unaccounted for compared to that of South Africa. This of course has fostered the flourishing of a cancerous culture of tax evasion in Nigeria over many years. In the place of the Federal Inland Revenue Service (FIRS), the ‘taxes’ are paid to a unique set of amateur regulators who have instituted themselves as protectors of certain informal enterprises.  In the end, such loopholes filter through to the central government with the result that insufficient resources weaken not just fiscal policy, but wreck the national development plan even while it is still in black and white.

Seemingly, the UN (or the IMF or the World Bank), with all its mandates and great responsibilities (with the result that it should probably be busier than any other non-profit entity in the world), has more information about a country than the country itself. Of course state information is an essential resource for the delivery of its mandate, but do the international agencies desire prosperity more for any African state than the state desires for itself? 

For Africa's real transformation, a revolution in our capacity to collect, interpret and analyze data – all done correctly – will catalyze and accelerate the process of African development. The tools are available already, what needs developing is our capacity – African Education – and the right deployment of this capacity in high probability setups for not just lifting Africa from poverty but also going forward to being able to tackle 21^st century challenges. The rest of civilization provides Africa with a rich history of invaluable lessons. The opportunities are tremendous. 

Finally, the educational system of the typical African state leaves a lot to be desired. As more  investments are projected to flow into Africa in the coming decade, the local management of such investments becomes a priority. The 'rich' human resources in Africa may NOT be useful if incompetence is the order of the day and the inability to handle economic prosperity is as pervasive as oxygen. 

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