Liberia to Have a Sovereign Wealth Fund?

A surprising phenomenon has been growing across the African continent over the last few years: plans by more than a dozen African governments to develop Sovereign Wealth Funds. These large pools of government revenues, which are diverted from the current budget and instead invested offshore in financial markets for future savings, rather than spent currently or in-country.

These investment vehicles are much associated with affluent economies such as Singapore, China, or the UAE, and not the desperate circumstances of the world's least developed countries. But they have spread across Africa this decade, and Liberia could be considering establishing its own fund. Below is the better part of a February 13th Reuters article:

Resource-rich African countries are busy setting up sovereign wealth funds, but critics say the funds may not serve the long-term interests of poor countries that still need to invest in basics such as schools and roads. 

Three oil producers, Angola, Ghana and Nigeria, started funds in the last two years. Before them, only Botswana, Gabon and Equatorial Guinea had such schemes. Other countries are following. Zambia and Liberia announced plans for funds last month. Tanzania, Kenya, Uganda, Mauritius, Mozambique and Zimbabwe have similar intentions. 

The funds can serve useful purposes, analysts say. Commodity earnings can be split into one fund for infrastructure and another for savings that can be used as collateral for even bigger amounts. 

"Africa needs higher savings," said Razia Khan, the head of Africa research at Standard Chartered Bank. "If it is done properly, the sovereign wealth fund and the accumulation of long-term savings essentially means that countries are improving their creditworthiness and opening up access to bigger sources of financing on more favourable terms. It does not preclude investment in infrastructure." 

But critics say Africa could reap more from its resources by investing in education, energy, and transport to feed other industries, rather than parking the money in liquid but low-yield assets in safe havens, as sovereign funds tend to do. Many successful wealth funds belong to countries with surpluses and rich citizens, which can afford them. That is not the case with many sub-Saharan African governments struggling to feed or educate their people, said Kwame Owino, the chief executive at the Nairobi-based Institute of Economic Affairs. 

"It would be a luxury to have. The political will may exist, but the economics of it suggest that a sovereign wealth fund is not a good idea for many sub-Saharan countries," he said. 

"In many of these countries as well, transparency is a big problem and the amount of leakage that takes place in public funds is a reason to be concerned." 

Liberia is looking at various models of wealth funds, including Norway's, the world's most transparent sovereign wealth fund, Finance Minister Amara Konneh said. The west African country also wants to avoid the so-called "Dutch disease", where a dependence on resource extraction causes other industries to wither. 

Botswana's $6.9 billion Pula Fund was the continent's most transparent on the Linaburg-Maduell index, with a rating of 6 out of 10. Nigeria's $1 billion kitty had a rating of 4 in the third quarter of 2013. The country added $550 million to the fund in February. 

"We have a real governance deficit," said Aly-Khan Satchu, a Nairobi-based independent analyst. "My concerns are that in a majority of these countries where there is a commodity-related windfall, it is proven already that in those countries the governance is the poorest of all the African countries." He cited Nigeria and Angola as example. 

Angolan President Jose Eduardo dos Santos, who has been in power for more than three decades, appointed his eldest son to run the country's $5 billion fund in 2013. That undermined confidence in how it will be managed, given the country's reputation for squandering or siphoning off petrol dollars...Angola's money bags have been stuffed with cash since the end of the country's civil war in 2002. It is now investing in developed-market equities and bonds issued by sovereign agencies, investment-grade companies, high-yield emerging market assets and Africa's hotel sector. Nigeria's reserve was created in 2011 for three main purposes. One is infrastructure, another is a collective savings account and another is a so-called stabilization fund, to cushion against commodity price shocks. A remaining 15 percent is unallocated.

The brief mention of Liberia is attributed to this January interview with Finance Minister Konneh, in which he states that Liberia is ‘looking’ at a Sovereign Wealth Fund. Liberia is a long way off from having one, and is obviously a much smaller, much poorer, and much less developed economy than even Nigeria, with all that giant country’s poverty, inequality, underdevelopment and other major problems. Yet Nigeria has staggering poverty, but instead of injecting its oil revenues in its own development, it has in the last few years opted to set up a separate, off-shore fund.

While some of the funds may be invested in capital projects, like public infrastructure or stakes in private ventures, a good portion of it stays outside of Africa, invested in bonds and stocks. Instead of investing in children’s health or education, the money purchases US Treasuries. Instead of teachers’ and nurses' salaries, the profits from the crude are going into the pockets of fund managers in fees paid in Geneva, London, and New York. From a Bloomberg report from February on Nigeria’s new fund set-up:

Goldman Sachs, UBS AG and Credit Suisse Group AG were among four managers named in August to help run a $200 million fixed-income fund. Eight more managers will be appointed before the end of June, with two expected to be announced next month, Orji said.

So, not only is the money not injected into the domestic economy, it is sucked up into the global banking industry and first-world finance markets.

This is not necessarily inherently evil: prudent savings for future generations, and global expertise in managing and allocating the proceeds from extractive industry could do a lot of good. The Center for Global Development has covered this topic in some detail over the last few years. In October 2011, it published a brief paper, “What Role for Sovereign Wealth Funds in Africa's Development?” that surveyed the proliferation of Sovereign Wealth Funds across Africa, looking at established funds like those in Botswana, and more recent developments such as those in Angola and Nigeria.

The paper raises a lot of the structural problems latent in a undeveloped, resource-rich economy, such as an inability to accept large injects of capital and the high likelihood and risk that such big accumulations of government cash and authoritarian attempts to disperse that cash within the country’s administrative budget would end badly. The heart of the paper sets out the ideal best practices for a successful SWF.

Which all sounds good, but starting point in so much of the discussion of African SWFs (and much else in the world today) remains the unchallenged notion that global financialization is good.  While acknowledging how incongruous it is for the world’s poorest countries to be launching investment funds, there is little exploration in all this discussion of whether or not more current spending, on infrastructure, on education, on health care, would be a better “investment” in the future than offshore investments in U.S. Treasuries or even just in foreign currencies—piles of cash.

The paper was also published before the launch of Nigeria’s fund, which has hardly been immune from Nigeria’s notorious politics, but more positively may direct some of its investment into Nigeria’s decrepit power sector. In the case of Angola’s Sovereign Wealth Fund, most of what has happened thus far is that the President’s son was appointed manager last June, a controversial Swiss firm as given a huge contract to manage the fund, and a massive expensive London office building was purchased as the fund’s office. The result on the streets of Luanda? The city’s street vendors were harassed by the police and banned from trading.

I know little about economics, but even after reading these papers, the drive to funnel resource revenues into offshore funds still seems a bit shocking, especially in our current age when the over-financialization of even the U.S. economy is widely questioned.

Most startling, and difficult to accept, is the idea that rather than better-paid teachers or more paved roads or clinics, megabanks like Goldman Sachs or politically-connected Swiss-registered outfits will be receiving their fee for managing the assets of the world’s poorest people, who are excluded from enjoying the benefits of their country’s natural resources, and that rather augment public and private spending, by buying low-risk assets such as government bonds or foreign currencies, the world's poorest are essentially lending the world's richest money. 

Global Entrepreneurship, Sub-Saharan Entrepreneurs

A few weeks ago, former IMF Economist and current MIT Sloan Professor posted in the NY Times Economix Blog about the 2012 Global Entrepreneurship Monitor Report, and mentioned Entrepreneurship in Sub-Saharan Africa several times: 

First, when the overall environment for business is bad, there are many entrepreneurs.  For example, while there is a great deal of variation shown by the data within Africa, it is also clear that this is a difficult place to do business, because, for example, regulation is unpredictable and property rights can be hard to defend against powerful people.

Lack of human capital is also a weakness.  You need capable engineers, managers and many others to help companies grow.  The education system in many African countries is not in good shape.

Yet, there are plenty of potential entrepreneurs in the study: “Sub-Saharan Africa reported the highest intentions of any geographic region (53 percent), which is consistent with their positive perceptions about opportunities and their belief in their capabilities” (Table 2.2).

The explanation is simple.  In such economies, entrepreneurship is a fallback option, when it is not possible to get a decent job in larger business.

The full report is here, wherein the reader will note that, while the GEM Report astonishingly surveyed nearly 200,000 people in 69 countries, representing 87% of the world's GDPs and 74% of its population, only 10 Sub-Saharan African states were included: Nigeria, South Africa, Angola, Botswana, Ghana, Malawi, Mozambique, Zambia, Uganda, Ethiopia, and Namibia. Of these, only Malawi is anywhere close to the developmental stature of present-day Liberia.  

Postcards of Pre-Independence Luanda

Escola Industrial, c.1960

Yesterday's descriptions of the remarkable infrastructure of mid-century Angola reminded me of my collection of vintage postcards of various African cities. The most-often repeated description of Luanda, other than being crowned the world's most expensive city in the 2011 Mercer survey, is that it now teems with 4 million people, being one of the most pronounced examples of a small colonial capital, built for a few hundred thousands, now crowded with more inhabitants than the entire country had at independence.

 Luanda, 1950

 Aerial views of Luanda, 1955-60

Porto Largo Diogo Cao

Luanda has been experiencing a construction boom as the oil bonanza has dominated the city, but it has long been regarded as one of southern Africa's most beautiful cities, with its waterfront corniche. These postcards, from the 1940s, when the city had about 60,000 inhabitants, til about 1970, when it had grown to about half a million, show a smart, modern city, with huge technical works for emptying out the interior, as seen in yesterday's post.

While this tidy, mannered capital was then considered an integral part of the Portuguese state, and was divided unevenly between a tiny white elite and a native population, its a shame that so little of this place remains. This originally city, like so many 20th century plans of Africa's capitals, is being made over into an imitation Dubai, in Luanda's case, explicitly so. Perhaps that Gulf emirates are not the models to solve urban Africa's problems, and perhaps its useful to remember that these places are not starting out as clean slates.

 Waterfront Vistas, c.1965

Stop That Train, I Wanna Get Off

On Friday, Angola held elections. The results were announced this weekend: the ruling MPLA party received 74% of the vote, easily pummeling the opposition. Therefore the era of the 70-year old Jose Eduardo Dos Santos, in power since 1979, will continue for at least another 5-year term.

The campaign season got its start with the resumption of the Benguela Railway (CFB) to Luena, a station in eastern Moxico province, deep in the interior of Angola (which is twice the size of Texas). That Friday the first time in at least a twenty years that the train has reached this far. President Dos Santos was on-board the train to celebrate the "inaugural" journey, which made for great press.

That same day I was in Amsterdam's book market in the Spui, cracking spines of tattered art and history books, and rummaging through boxes of ephemera. Astonishingly, I found an old guide to the Benguela Railway, printed in English in about 1960, some 15 years before Angola's independence and the commencement of fighting that would halt the railway's operations. Feigning only mild interest in the item, I bought it €5.

Serendipity aside, this is a gorgeous, wonderful old article. Although I was seriously tempted to scan the entire 34-page pamphlet in all its vintage glory, I think the 14 pages below suffice for a blog post.

Like earlier late-colonial printed emphera that I've posted here, there is a strange mix of the delight of the dated item, brimming with mid-century optimism and the bizarre, uncomfortable anachronisms of its racist hegemonic presentations.

Both are on display here, along with the staggering scale of the infrastructure of the entire operation of port, rail, warehouse, and auxiliaries, which, although featuring ultra-modern sleeper cars running a passenger schedule to the border with the Congo, is clearly about movement in the other direction, exporting mineral cargo from to the port at Lobito and from there to other continents.

While the service has yet to reach the border with Congo again, President Dos Santos's Minister of Transport vowed on Friday to press ahead, resurrecting the entire service and connecting it with other Angolan rail operations and the networks across Southern Africa. This will be made possible, according to the Wikipedia article, with several hundred million dollars of assistance from the Chinese.

So, hopefully next year, the Benguela railway will then be returned to full service as a vital strap binding Angola together: transporting goods and people into the heart of the huge country, and extracting the vast interior's magnificent riches for shipment overseas-- 53 years after this marvelous infrastructure was documented in this gorgeous pamphlet.

Paula Scher's Map of Africa

At the other end of cartographic history from the previous post's artifact sits this contemporary specimen from world-famous graphic designer Paula Scher of the Pentagram Group. In its own way nearly as abstract as the chart from 1570, with fanciful interpretations of the shapes of many of the countries, especially Cameroon, Benin, Mozambique and several others. 

The map's defining feature is overwhelming bustle of twisting place names that fan out across the entire canvas. Country names and capital cities are most prominent, but each space on land and ocean is filled with the chalky block type of cities and other features near to their true location. 

"Liberia" is in white and upside-down from the reader as the Guinea Coast turns northwesterly. "Monrovia" is nearly more prominent in black, delimited in a white box. Between the two sits the large, bending "Grain Coast" crammed in with a dozen other town names: Harbel, Mount Barclay, Buchanan, Edina, Hartford, Greenville, Marshall, Brewerville, Tubmanburg, Robertsport. Settler communities, all. Back on the land, names of a few county towns can barely be deciphered in tiny, thin letters-- only Zwedru is large enough to read from afar. 

Just How Easy (or Hard) Is it To Get African Visas?

©2011 Matthew M. Jones/Moved2Monrovia. Click for larger version.

"Africa is Open For Business!"

Its hard to avoid hearing this slogan recently: verbatim on CNN, and in the pages of major publications. Global consultancies will tell you this, too. But what does this mean, in practical, personal terms? Sub-Saharan Africa is made up of more than 50 countries, almost every one of which at least states that they're trying to attract foreign investment.

There have been attempts to measure this. The World Bank's Ease of Doing Business rankings have exploded in popularity in recent years (with the Caucasian Republic of Georgia mentioning its top-reformer status in television advertising). This index, surprisingly, does not compare one of the most basic measures of ease and welcome, and one that reflects directly on a country's efforts to open its doors to potential investment: How simple and straightforward is the entry process for foreigners into these countries?

I've often thought about this before in the last four years of traveling across the continent. But two recent incidents reminded me of this. The first was the report from the Cato Institute, titled "Why Is Africa Poor?", which, among other bemoanings, wondered how many potential tourists and foreign investors have been put off by the hassle or perceived chore of getting a visa to visit an African country (speaking of the Republic of Georgia):

To increase its share of the tourism business, Africa will have to liberalize air flight and visa regimes. In the formerly communist country of Georgia, for example, it is not necessary to acquire a visa for visitors who come from countries with a GDP per capita of $10,000 or more. Compare the Georgian system to the difficulty of entering many African countries or, for that matter, the difficulty of leaving African countries like the Democratic Republic of Congo, where one has to run a gauntlet of security and other checks—informal and formal.

I wonder how many visitors from rich coun- tries to Africa have been put off by the challenge of just getting to the continent or getting a visa. Yet I suspect that few, if any, overstay their welcome. The number of tourists to Georgia has nearly quintupled from 2003 to 2009—a war with Russia notwithstanding.

I don't know what an "air flight regime" is, and am not endorsing this report wholeheartedly, but I agree with part of the above sentiment.

Separately, but similarly, last week's surprising headline incident, in which veteran diplomat John Campbell was unable to gain entry to Nigeria in time to attend a graduation ceremony of an American University backed by former vice president Abubakar. Just to underscore: among many other career acheivements, Campbell is the former Ambassador to Nigeria. So you'd think he might be familiar with getting into and out of country...which makes you wonder how he was unable to get his visa. Hmmm.....

With these in mind, I conducted a very unscientific investigation into the sometimes-murky world of obtaining an entry visa into Sub-Saharan countries. Before going further, please read and agree to this legally iron-clad disclaimer: I can't guarantee that what I've gathered is accurate, and this information is subject to completely change. I obtained 95% of this information from the State Department's website, which is a great source, as well as the websites of various foreign diplomatic missions in Washington and New York. This does not cover requirements other than those for US Passport holders, and will not go into scenarios like obtaining visas for neighboring countries in Africa can sometimes be easier, and sometimes more difficult.

As this is already a long post, I'm also not going to index any of the basic details of visa applications, like the different types of visa (based on purpose of visit and length of stay), or important steps like getting required vaccinations, or any discussion of fees. Again, this is a subjective survey, and this information could change as I write these words. In summary, do not fly to Africa without required entry visas. Doing so can result in being flown back home at your own expense, or being detained, fined, or imprisoned.

The ease or difficulty of US citizens entering the 50-plus Sub-Saharan countries covers a broad spectrum: some countries are as wide-open as Netherlands, some so unwelcoming as be almost North Korean.

Starting with the more hospitable category, the good news is that several of the more popular destinations for American visitors are among the easiest to get into, and in almost all cases don't require a visa. These are popular business, development, and tourist destinations like Botswana, Senegal, and Mauritius. Others are something of a pleasant surprise, with no pre-arrival visas required for Americans to enter Zimbabwe, Equatorial Guinea, or Swaziland. [Update 5/21: Rwanda grants most tourists a 90 entry visa-free, but seems to have different requirements for aid workers, students, or businessmen. Thanks to Jina Moore for this suggestion.]

Similarly, many states allow the vast majority of American visitors to just show up unannounced and gain entry, but there are a few details that might be relevant. For instance, South Africa is somewhat infamous for requiring at least one entirely blank passport page per entry, and anecdotes abound of customs officers insisting on even more virgin territory, supposedly in case a visitor transverses through other countries in the region and seeks another entry into SA. This in turns leads neighboring countries, like Namibia, to reportedly mimic this requirement. Rather than be booted back onto a 15-1/2 hour flight home to New York, a cost you would be responsible for, travelers should take note, and consider having extra pages added to a passport.

Likewise, some countries let Americans in without a problem, but getting a visa beforehand can still be strongly advisable. Kenya is a prime example: A pre-arranged visa can be a huge time saver, easing your life just when you are your most miserably jet-lagged. Rather than waiting in a long line and filling out paperwork in the groggy disorientation of arrival, sail past border control, and its queues. In 2008, I went ahead and got a Kenyan visa in Washington before I left the states, getting my passport back two days after I submitted it. Weeks later, I passed a long line at Nairobi's JKIA after a long overnight flight. I was very proud of myself.

Similarly, other countries like Ethiopia and Tanzania routinely grant Americans visa-free entry at Addis Ababa's Bole Airport and at Dar Es Salaam Airport, respectively, but at other entry points, like land borders, this might not be the case. The scene at Entebbe Airport in Uganda is reportedly similar.

In some other cases, arriving without a visa might involve basically applying for the visa at the airport, and waiting around in Immigration to get clearance. Not the sort of chore anyone would choose to undergo, but at least the option is there, especially when hopping around the continent with loose plans. Madagascar and Mozambique likewise do not require a prior visa, but its much easier if you already have it. [Update 5/21: Zambia allows tourists to pay for a single-entry visa at border crossings, but have much more strict visa regulations for most other visitors. Thanks to Shelby Grossman for this clarification]

Separately, countries such as Namibia let many tourists in through major entry ports visa-free, but do require visas workers or students. For many countries, foreigners who show up at remote land crossings can expect greater scrutiny than if they were to arrive on a scheduled flight at the capital city's airport.

The murkiness of the next category down could be considered quintessential of travel in less developed states. Several countries may, or may not, usually, or occasionally, grant Americans visa-free entry in at some entry ports, but then again, maybe they don't. Its always best to play it safe, but in the case, try to get a visa beforehand at all costs.

Ghana is a classic example of this. Technically, there is a process to get a Ghanaian visa upon arrival, but from personal experience this involved (1) Almost not being allowed to board the flight from Chicago to Amsterdam; (2) Waiting 45 minutes in a stuffy, crowded Immigration office at Kotoka Airport 24 hours later, during which I was lectured for not being an emergency asylum case or refugee. It wasn't a process I would wish on anyone. I did get a single-entry visa, but this ended up being a hassle a week later, when I got invited to a neighboring country, but then realized that I couldn't leave Ghana without applying for a visa in that other country. If I had had enough notice, I would have sent my passport to DC before I left.

Similar "I've heard they do, but I can't guarantee you" or "It was different a couple years ago" stories come out of Burkina Faso, Sierra Leone, and Djibouti. Also, unrecognized Puntland/Somaliland supposedly grant visas at points of entry--but is this the sort of detail to be left to chance? For those intrepid enough to be venturing to these two regions, perhaps the answer is yes.

The next category, shaded yellow, are those countries which definitely require a visa beforehand, but the application isn't usually a big deal (aside from the very low-tech errand of getting passport photos at the local CVS or something). Somewhat interestingly, this is the smallest group: Cape Verde, Sao Tomé, Mali, Togo, Gambia, and Eritrea. The downloadable visa application for Mali is one page of pretty basic contact info, and gives the applicant the option for length of visa (single/multiple, etc) and asks virtually no questions about itinerary, financial resources, etc. Perhaps not the flagship example, the Republic of Togo has a delightful new website with absolutely no information about visas.

Other countries requiring a pre-departure application are a bit more involved. This can vary depending on the type of visa but it is common for the Embassy to require either a list of references in the home country (Liberia) or a letter of invitation, from a colleague, hosting company, or personal friend, in addition to sending in proof of vaccinations; head shots taken just so, with this color background, not that; and some sort of proof of itinerary or return ticket, which frankly in the age of Expedia and Kayak can pretty easily be bluffed. Still, this is an involved process, with lots of instructions and procedures, which take time both to complete and be turned around. In something of a setback, two years ago, Cote D'Ivoire slipped into this category from previously granting visa-free access to most Americans.

This process is challenging enough when visiting one country, but can really start to add up as it is common for a traveler to be planning to pass through several countries. Expect at least 3 days to a week of turn-around, per visa. Although it adds to the cost, consider using a passport rush service, which often work their relationships at these consular offices to get paperwork turned around just a little bit faster. There are several good agencies in both Washington and New York.

The last two categories are the more notorious. To varying degrees, these countries just do not make getting a visa quick or simple. The process is complex, lengthy, taxing, and difficult. Anecdotal reports tell of month-long processing, and of having applications returned due to insufficient documentation. While outright denial of a visa is rare, the clock can basically run out, if several weeks go by and the visa hasn't been issued before departure. Those in this category include some of the continent's largest countries: Nigeria, DR Congo, and Sudan, along with other least-developed economies not having solid reputations for ease of process or access to information. Guinea-Bissau is on the outer edge of this category, as their embassy in Washington "temporarily" ceased function in 2007. South Sudan is challenging because of its transitional diplomatic circumstances.

Special mention goes to the all-out Kafkasque nightmares: booming Angola and rather less burgeoning Mauritania. Their remarkably complex, involved, invasive processes rank proposed travel to the country at the same level of effort as applying to graduate school (often with a similar wait time). Both these countries reportedly take the particularly painful step of sending the applications to the home country for evaluation. This takes several weeks. For Mauritania, the State Department's own report states:

Mauritanian visas require an invitation or sponsor, can take up to several months to process, and must be obtained prior to travel.

Not exactly open for business. The Fort Knox Prize might go to Angola, whose invitation-only, submit your diplomas and bank-statements life audits make Greece's Mount Athos look like a public library.

Angola is awash in petrol-cash. In terms of prices, Luanda is the Moscow of Africa. Most foreigners arriving at the direction of their multinational employers, so Angola is not looking for the odd frontier market investor to kick the tires. However, other African countries aren't so flush with investment, and there's no question a few of them could make the process easier, which would probably yield more foreign interest as a result.

This already-long post could enter into a whole discussion of how African countries are, on the whole far more open to US Citizens than America is to them. If there is truly a Fort Knox award, it would probably be the country of Fort Knox. African governments have simply reciprocated US visa rules and fees schedules-- precious income for many foreign ministries and bureaux of immigration that would be lost if barriers were lessened.

It seems obvious to say that, if you need a visa beforehand, then you can't drive out to the airport and fly over for a meeting the next day. It might not seem to be a big deal, except that, in the world of international investment, it is sort of normal to jet off between New York, London, Frankfurt, Tokyo, Hong Kong, etc. at the last minute. Many of Africa's leaders, citizens, and boosters have the lofty goal of including Lagos, Nairobi, Johannesburg, Kigali, Dakar, Accra, and many other African cities to that circuit of world business capitals. While there are bigger obstacles to overcome to progress on that, visa restrictions are an impediment to that. The government of Rwanda seems to be aware of this, as they have eased visa requirements for US Citizens in the last few years.

More generally, I have often wondered how much African governments realize that they are competing against each other (and the rest of the world, for that matter) in the chase for slice of global investment capital. In looking past the hype of how Africa's doors are open to business, it is an important to have some perspective: there are more than fifty sets of doors, and each with their own keys.

I'd be interested to hear any particular anecdotes, or horror stories, or if any of the information above is deemed inaccurate, please don't hesitate to offer up other advice-- I'd much rather be told I am definitely mistaken and correct the map above than disseminate incorrect information. [this post and map were updated on 5/21 to reflect certain suggested improvements.]