International Finance

Nkasi Wodu is a lawyer, peacebuilding practitioner, and development expert based in Port Harcourt, Nigeria.  For multi-national companies (MNCs) operating in Nigeria’s Niger Delta region, doing business can be a daunting prospect. The problems are numerous, and many solutions have been offered and implemented with varying degrees of success across the nine Niger Delta states. In a context characterized by rising unemployment and underemployment above the national average, rising poverty levels, a growing youth population, a history of perceived marginalization, weak political and institutional governance, and an infrastructural deficit, MNCs operating in the Niger Delta must invest significant proportions of their profits in corporate social responsibility (CSR) interventions. They have come to understand that they must also secure the social license that allows them to operate in local communities. These CSR interventions take the shape of building health centers and schools, and construction of roads, bridges and other infrastructural projects.  Already operating in an environment with structural weaknesses and rising demographic pressures, MNCs also must confront these conflict dynamics. These include a mix of criminality, gang, election, ethnic, and communal violence, all of which feed into and are exacerbated by a culture of militancy. According to reports by the PIND Foundation, this conflict landscape is further defined by political patronage, ethnic rivalry, clashes between cult groups, and a general competition for resources – including land. All of these factors taken together drive conflict in the region. Some MNCs have responded to these systemic weaknesses and subsequent conflict risks by establishing and funding community structures to meet the infrastructural and welfare needs of their host communities. These strategies are intended to facilitate host community projects, and secondarily, also act as conflict management structures in an attempt to address drivers of insecurity. Unfortunately, in many instances, the indigenous actors that take up positions in these community structures are often the very same patrons or beneficiaries of various criminal networks that drive the conflict dynamics in the region to begin with. The implication of this is that the responsibility of maintaining “peace and security” in these communities is often left in the hands of conflict actors themselves. In other words, the mere presence of an MNC in local communities can actually be a source of conflict.  This then begs the question of: Whose business is it, anyway, to maintain peace? An argument can be made that MNCs as business enterprises are not responsible for building peace in the communities where they operate. To paraphrase Milton Friedman, the only social responsibility [there is] is to make profit. However, contemporary literature in the field of business and peace has evolved significantly since Mr. Friedman’s thesis. For one, the United Nations has reinforced the role of the private sector in contributing to the actualization of the Sustainable Development Goals (SDGs), especially SDG 16, which focuses on the building of strong and peaceful institutions. MNCs need to broaden their perspective of “peace,” and become more conflict sensitive. MNCs occupy a pivotal position as major contributors to the economy in a complex and dynamic context. They are faced with competing demands from communities and ethnic or socio-political groups, and cannot afford missteps that could characterize them as favoring one group over the other. MNCs need to improve their understanding of the socio-political context in which they operate, and based off of that understanding, develop relationships with local peace actors and invest in building their capacities for conflict mitigation, to better respond to emerging dynamics. For MNCs, contributing to a stable environment also has huge economic gains. It is beneficial in securing their assets from disruptions, ensuring the safety of their staff, and fostering cooperation with communities in addressing problems that could adversely affect the company. This is certainly good for the bottom line. There are rarely any “quick wins” for MNCs in fragile and conflict affected environments like the Niger Delta, but the long term benefits of investing with foresight and knowledge, and coming equipped with the proper tools and relationships, can have the long-term benefit of contributing to local and regional economies and potentially lifting millions out of poverty and insecurity. This is something worth investing in. 

Tareian King is a former intern with CFR's Africa Program and a student at the Elisabeth Haub School of Law at Pace University. She is also the founder of Nolafrique, an e-commerce platform that enables artisans in African villages to have global exposure and opportunities for scale up. African Americans are in a financial position to start businesses in Africa, and they should. In 2018, businesses owned by African Americans grew more than 400 percent. Since a storm of protests against racial inequality, interest in supporting Black-owned businesses has soared. From May 25 to July 10, there have been more than 2.5 million searches for Black-owned businesses on Yelp, compared to approximately 35,000 over the same period last year—a 7,000 percent increase. This year, corporate America has also made more commitments to support black-owned businesses. Google, Coca-Cola, ExxonMobil, AT&T, Walt Disney, and Capital One, among others, have participated in the “In This Together” initiative, a campaign to invest $1 billion dollars in Black businesses. As encouraging as the current wave of support is, it must contend with the cruel reality that Black-owned businesses in America have long lacked access to large amounts of capital. For example, within the first year of business, only 1 percent of Black business owners are approved for a bank loan compared with 7 percent for white-owned firms. Consequently, it is difficult for Black businesses to hire employees in important sectors, such as marketing, consumer relations, and business development, and many owners must use personal wealth or income to fund their businesses. Although Black businesses have become increasingly successful, even though they are experiencing an unprecedented wave of political and economic support, they still confront longstanding financial inequality in America. Therefore, they might turn to Africa for economic opportunity. Africa is home to many developing economies that have a higher return of interest than developed economies. The amount of money required to start a business in most African countries is relatively small. Notable examples include five entrepreneurs in Africa who started what are now million-dollar businesses with less than $300. In Kenya, an entrepreneur turned $116 into a transportation business that generated $1.5 million dollars in revenue; an entrepreneur in South Africa turned $100 into a pig farming business that generated $2.5 million dollars in revenue; and an entrepreneur in Nigeria turned $250 into a digital marketing business that generated $6 million dollars in revenue. If Black business owners invested in Africa instead of America, maybe they too could be a part of the continent’s notable examples. Though investing in Africa can be tough as the continent has a complex business environment, many African countries are trying to make it easier, and several have favorable investment environments. Ghana is the lead example, creating special investment programs that make it easier specifically for African Americans to invest, but Rwanda, South Africa, and Senegal are also countries with favorable conditions and investment protections. If Black business owners invested in Africa they could take advantage of these programs, gain profits, and help Africa’s entrepreneurs. Since American capital goes much further in Africa than in America, Black business owners can invest in Africa and support many cash strapped entrepreneurs. Many young entrepreneurs in Africa have innovative ideas but not the financial means to carry them out. Therefore, Black business owners already have prospective business partners on the continent who can help orient them on Africa’s business environment. If Black business owners invested their capital into Africa’s entrepreneurs and created joint ventures, they could profit from businesses in Africa without having to physically be present. While Black businesses are booming in America, they could perform even better in Africa. Africa offers Black business owners more affordable and diverse business opportunities, and a young entrepreneurial population who would make great business partners.

Tareian King is an intern with CFR's Africa Program and a student at the Elisabeth Haub School of Law at Pace University. She is also the founder of Nolafrique, an e-commerce platform that enables artisans in African villages to have global exposure and opportunities for scale up. The year 2019 marked four hundred years since the first enslaved people from West Africa arrived in the United States. The president of Ghana, Nana Akufo-Addo, declared the anniversary the Year of Return. It celebrated the resilience of African Americans and encouraged them to return to Africa, visit, apply for Ghanaian citizenship, and take advantage of investment opportunities. Festivities included naming and healing ceremonies, trips to heritage sites, musical performances, lectures, investment forums, and relocation conferences. According to the minister of tourism, the initiative generated $1.9 billion in tourism revenue. Although all members of the African diaspora—both recent immigrants and descendants of the transatlantic slave trade living predominantly in the Americas—were included, the primary focus was on African Americans. The connection between African Americans and Ghana is not new. In 1957, Ghana became an inspiration for African Americans when it became the first sub-Saharan African country to win independence from a colonial power. Ghana’s independence also gave momentum to the Pan African movement, which, among other things, encourages solidarity among all African diaspora ethnic groups to obtain political and economic power. Martin Luther King traveled to Ghana to celebrate its defeat of colonization, and Malcolm X and Maya Angelou worked in Ghana during the presidency of Kwame Nkrumah. W.E.B. Dubois died in Ghana as a Ghanaian national and today, there is the W.E.B. Du Bois Memorial Center for Pan-African Culture in Accra. Marcus Garvey, the famed Jamaican Pan-Africanist, advocated for the return of African Americans to Africa. He founded the Black Star Line to help blacks return to Africa, which is the origin of the black star on the Ghanaian flag and for name of the national football team. Ghana’s Year of Return initiative sought to not only carry on this relationship, but expand it. The initiative is a part of a larger strategy to make Ghana less reliant on aid by drawing on, among other things, business and investment from African American. The goal of President Akufo-Addo’s broader development agenda, called “Ghana Beyond Aid,” is to achieve self-reliant growth and to break out of the mindset of dependency. According to Akufo-Addo, Ghana does not need foreign aid; instead, it needs the African diaspora to return, build, and invest. The United Nations Sustainable Development Partnership (UNSDP) adopted his agenda as part of its plan for African development. Ghana is well-positioned to become less reliant on aid. In 2017, Ghana received $1.25 billion in official development assistance (ODA). This was only 2.1 percent of Ghana’s GDP of $59 billion in 2017. (ODA is government aid that promotes and specifically targets the economic development and welfare of developing countries; it excludes military and anti-terrorism activities.) Moreover, Ghana already attracts substantial investments from abroad. For example, the value of French foreign direct investments in Ghana in 2017 was $10.5 million for a total stock amounting to $1.7 billion, and China will have begun work on $2 billion worth of infrastructure construction in Ghana. But, African Americans will have programs specifically created for them. As part of “Ghana Beyond Aid,” the president announced the launch of "Beyond the Return: The Diaspora Dividend,” a multi-million dollar fund to attract investment from members of the African diaspora. It will consist of special diaspora investment programs, Sankofa Savings accounts, and diaspora housing schemes. The ministry of finance stated that the African diaspora will be able to invest in "tourism infrastructure, agriculture value addition, real estate, music, culture, and retirement homes.” In Ghana, African Americans have no language barrier and the country has a transparent legal system and a business environment that makes it a secure and reliable destination for investors. Ghana is also the only country to provide people of African ancestry the legal right to stay in the country indefinitely through its Right to Abode law. During the Year of Return, Ghana waived a number of bureaucratic hurdles and granted one hundred African Americans citizenship based on their African ancestry alone. At a memorial ceremony for George Floyd, Ghana’s minister of tourism, Barbara Oteng-Gyasi, told African Americans to “come home, build a life in Ghana.” Ghana’s courtship of African Americans has grown from one based mostly on solidarity in the face of black oppression to one also based on business and investment. Ghana hopes to attract investors with an interest in its development, while some African Americans can profit personally from the relationship. With available business opportunities, a welcoming environment, and an opportunity to leave behind racism and police brutality, some African Americans may accept Ghana’s invitation.

Stephen Paduano is the executive director of the LSE Economic Diplomacy Commission and a doctoral researcher at the London School of Economics, where he studies African political economy with an emphasis on U.S. and Chinese policy. Two weeks ago, African leaders and Chinese President Xi Jinping met by videoconference to discuss debt. What is usually a rather dismal subject in China-Africa relations, proved much more upbeat. During the event, which was billed the “Extraordinary China-Africa Summit on Solidarity Against COVID-19,” President Xi came with what was indeed an extraordinary offer. As the pandemic now pushes most African nations deep into debt, China will be cancelling their interest-free loans.  In certain respects, it may appear that this was too little, too late. Interest-free loans account for less than 5 percent of Africa’s rapidly mounting debt to China, according to researchers at Johns Hopkins University. The announcement also came a full two months after the World Bank, IMF, and G-20 had begun their own emergency financing operations continent-wide. In the time that Beijing waited, hinting only that it would work with African nations behind closed doors on a bilateral basis, Africa’s COVID-19 caseload rose from 10,000 to 300,000 and the continent slipped into its first recession in twenty-five years. President Xi’s offer of cancelling interest-free loans may not be extraordinary for its punctuality, but it remains so for its utility and its wider political implications. Although the world has already wised up to Beijing’s role as a global lender—with the mixed-baggage it may bring to developing nations’ debt burdens—Beijing’s role as a serious development partner, one that is willing to undertake less lucrative tasks such as debt cancellation, is only just beginning. New data released by the World Bank last week demonstrate just how serious that role has become. Outstanding debt figures reveal China to be the largest creditor to sub-Saharan Africa’s low-income countries, having lent $64 billion versus the World Bank’s $62 billion. There are many reasons to support this evolution, but there is also cause for concern China’s relationship with Africa is an outgrowth of the Cold War and its interests there have sometimes appeared stuck in the logic of that conflict. When Beijing first made its push onto the continent in the 1950s, it did so to advance its Maoist ideology, build support beyond Moscow’s and Washington’s blocs, and undermine its northern neighbor following the Sino-Soviet Split of the early 1960s. It found success in all its ambitions, and as African nations swung the 1971 vote to oust Taipei and bring in Beijing to the United Nations, it became clear that China’s investment in Africa was a good one. However, in the decades that followed, the relationship never evolved beyond an “investment” in the most material of senses. Searching for little more than political and financial yield, Beijing entered the new millennium stalking sites of human rights abuses and abundant oil wealth, such as Angola and Sudan, from which Western states largely kept a distance. As China now grows fitfully into its role as a global leader, its relations with African nations appear to be expanding beyond such power and resource grabs. In the past two decades, Beijing has come to complement its controversial $152 billion worth of loans with meaningful relief efforts, restructuring or refinancing $15 billion of them. But cancelling debt outright, as was announced at the Extraordinary Summit, has remained a rarity. Since 2000, Beijing had written off just $3.4 billion of African debt. Where a restructuring, such as extending maturities, raises concerns of kicking the can down the road, and a refinancing, such as issuing new loans, threatens to increase the debt burden, cancellations promise much-needed fresh starts. Xi’s announcement of cancelling interest-free loans is therefore a welcome development, marking only the ninth such pledge in the history of China-Africa relations. Though the proportion of China’s interest-free loans to its total loans, just 5 percent, may appear small as a headline figure, it will nonetheless prove useful as debtor nations work to build fiscal space in the months ahead. Given the scale of Africa’s debt crisis, it should be taken as a great reassurance that China, its largest official lender, has warmed to the idea of cancellations. African nations will also benefit from the fact that China does not generally attempt to compel Western private creditors to participate in debt relief—which, when attempted by the G-20, has led credit rating agencies to issue costly warnings and downgrades of African nations’ sovereign debt. Similarly, China’s aid tends to come free from the G-20’s onerous stipulation that participating nations not seek commercial loans for the rest of the year. As a bond rally in emerging markets pushes down borrowing costs and pushes away the G-20, Chinese debt relief may be uniquely positioned for the moment. Still, there are important consequences to China’s debt relief. Research from the College of William & Mary found that if an African country votes with China an additional 10 percent of the time, it will receive an 86 percent increase in aid—and a 159 percent increase in grants. Further, given China’s indifference to authoritarian governance and human rights abuses, the ability to turn to China for development assistance makes it difficult for Western development institutions to request or impose reforms. Research from Heidelberg University has found that for every percentage point increase in Chinese aid, a nation will receive 15 percent fewer conditions from the World Bank. Then there is the occasional kowtowing. In recent years, China has leveraged its largesse around the world to keep partners mum on the issue of concentration camps in Xinjiang. In Africa, a dozen nations, some with sizable Muslim populations, have also been compelled to praise the brutality against the Uighur Muslims. Others have gone on to praise the democracy crackdowns in Hong Kong. Likewise, all but one African nation—tiny Eswatini—has complied with China's demand to cut off relations with Taiwan. Alarming though the consequences of Chinese aid may be, its importance in the current crisis must not be overlooked. There will be much time in the years ahead to challenge Chinese influence at the UN, maintain political conditions at the World Bank, and counteract smaller states' kowtowing. But as Africa’s COVID-19 death toll continues to rise and its debt burden does too, Western nations and institutions must embrace China as an ally in this fight.

The fall in international oil prices is having a devastating impact on Nigeria’s formal economy. Oil, the property of the Nigerian government, provides more than 60 percent of government revenue. Further, sales, denominated in U.S. dollars, account for more than 90 percent of Nigeria’s foreign exchange. The oil price drop, while made worse by the economic consequences of the coronavirus pandemic, began thanks to a price war between Saudi Arabia and Russia. Oil closed at about $60 per barrel in December 2019, but has since fallen. It plunged to about $18 per barrel in April, and recovered in May to about $25 per barrel. Even with the recovery, the Nigerian government's revenue, and its access to U.S. dollars through oil exports, is less than half of what it was at the start of the year. The governor of the central bank, Godwin Emefiele, says that foreign exchange (mostly U.S. dollars) must be devoted to "strategic imports." That would include medical supplies made necessary by the coronavirus. He also says that there will be an "orderly process" by which foreign investors will be able to repatriate their funds. But, for now, they must be "patient." The Manufacturers Association of Nigeria estimates that the backlog of unmet U.S. dollar demand in Nigeria is $1 billion. Without access to dollars, manufacturers cannot import the raw materials or components they need. Driven in part by the need for dollars, the government devalued the Nigerian currency, the naira, to 360 to the U.S. dollar, down from 306. That, apparently, was not enough. As of May 12, the naira is traded at 445 to the dollar on the street, and the one-year forward trading rate is 514 to the dollar, which means traders expect the exchange rate to fall even further. The Lagos stock exchange index is down about 12 percent since the start of the year. Because it is denominated in naira, and the naira has been devalued, the loss in value is even greater in terms of international currency. There are anecdotes (impossible to quantify) that rich Nigerians are getting out of the market and doing what they can to shelter their assets abroad—an old song in times of instability, whether economic or political. The picture is bleak for the formal economy made up of the small middle class and the oligarchs. With its direct and indirect overreliance on oil, this part of the economy is fragile. But it is estimated that 65 percent of Nigerian GDP is produced by the informal sector. Further, another rough estimate is that half of the population continues to be rural. Hence, together with the fact that government has little or no role in the lives of most Nigerians, it is likely that most Nigerians are not significantly directly impacted by oil prices, government revenue, stock indices, and foreign exchange shortages; the ongoing breakdown in security in many parts of the country is likely to be of greater concern. Farmers, fishermen, and petty traders will continue to farm, fish, and trade, providing a resilience that outsiders may underestimate. Still, amid the coronavirus pandemic, the ability of the government to provide supplies to medical workers and economic relief to those out of work because of lockdowns may well begin to be felt in the informal sector.

Stephen Paduano is the executive director of the LSE Economic Diplomacy Commission and a doctoral researcher at the London School of Economics, where he studies African political economy with an emphasis on U.S. and Chinese policy. The reports that have surfaced in recent days in Guangzhou, a city in southern China and the site of a diplomatic crisis with Africa, are undeniably grim. Videos and images show young African men being dragged in handcuffs by Chinese authorities, pinned face-first in the pavement, shepherded by riot police down an empty street, and made to sleep outside after apparently being evicted. In one short week, the city’s startling and unabated racism has lit up capitals across the African continent. As the news has spread, the anger has grown, and it would now appear that the China-Africa relationship is entering an uncertain chapter. In some respects, good may come of it. A sober reassessment of this relationship by African officials, stripped of the “win-win” rhetoric Beijing often touts, will be necessary for African states to achieve better partnerships on more even footing. However, there is still serious reason to worry. With the livelihoods of Africans abroad under siege, the situation at home is little better, requiring ambitious multilateral assistance. A deterioration of Africa’s relationship with its largest trading partner and official creditor will serve no one’s interests—neither those of the Africans, nor those of the Chinese, nor indeed those of the Washington officials who may be pushing for such a rupture. Although there have been flare-ups in the China-Africa relationship in the past—the periodic anti-China riot in Zambia, the sporadic attack on Chinese workers in Angola—this crisis is unprecedented with its continental scope and high-level rebukes. In recent days, leading political figures, including the chairman of the African Union, have put out statements and released videos questioning and criticizing their Chinese counterparts. In one, Nigerian Speaker of the House Femi Gbajabiamila instructs the Chinese ambassador to watch the clips from Guangzhou as he says, “We will not allow Nigerians to be maltreated in other countries.” In a similar spirit across the continent, Kenya’s Daily Nation ran the headline, “Kenyans in China: Rescue Us From Hell.” Undeniable though the reports are, Chinese officials have thus far been intent on denying them. China Global Television Network, a state-backed media organization, dismissed the story as “fake news.” Its embassy in Harare concurred, making a counter-accusation about Zimbabwe’s mistreatment of Chinese migrants and adding a claim that all this is just a U.S. attempt to “sow discord.” Back in Beijing, Foreign Ministry spokesman Zhao Lijian dismissed the concerns outright. “We treat all foreigners in China equally and we reject discrimination,” he told reporters. In the past, African officials have often been reluctant to criticize their opposite numbers in Beijing on any issue—keeping mum on Hong Kong and Xinjiang, toeing the line on Taiwan, and showing support over U.S. objections throughout the trade war. In exchange, China has provided not only consumer demand, access to capital, and a blind eye towards misdeeds, but also an ear and an amplifier for grievances with the West. However, the scale of the outrage in African media and the Chinese refusal to brook further criticism around coronavirus have entrenched both sides. Now their delicate balance, the “all-weather friendship” in Communist Party parlance, appears to be coming to naught. To make matters more fraught, U.S. officials have swooped in to add criticism. Its top diplomat to Africa, Tibor Nagy, called the Guangzhou reports “appalling,” as a State Department official said the episode was “a sad reminder of how hollow the PRC-Africa relationship really is.” In Washington, in truth, these events are likely to be a welcome development in the long-desired decoupling of China and Africa. Since former National Security Advisor John Bolton declared a return to “great power competition” on the continent in 2018—singling out the “disturbing effects of China’s quest to obtain more political, economic, and military power”—administration officials have opportunistically chided Chinese activity in Africa and looked to drive a wedge. But beyond expressing legitimate concerns about the treatment of Africans in Guangzhou, U.S. officials would be wrong to add fuel to this fire. Africa is not a theater for “great power competition,” despite what this administration may say, and at this moment international cooperation is in everyone’s interest. With the World Bank projecting that sub-Saharan economies will contract by 5.1 percent in 2020, marking the first continental recession in twenty-five years, multilateralism has become urgent. Indeed, African officials continue to make clear that the international community must come together to help their countries weather this storm. Late last month, Africa’s finance ministers called for $100 billion to provide much needed healthcare funding, debt relief, and other fiscal support. The U.N.’s special adviser on Africa subsequently revised that number to $200 billion. Last week, as well, a group of prominent African figures added a call for a two-year standstill on debt repayments in order to ensure that states do not have to spend more on servicing their debt than they do on healthcare—as is currently, unfortunately the case in Angola, the Gambia, Ghana, Zambia, and elsewhere. Multilateral coordination will be tricky but necessary, and China has a central role to play. Although there have been reassuring signs of seriousness from western institutions—the G20 is reportedly moving forward with the proposed debt moratorium, the World Bank has announced it will deploy $160 billion globally, and the IMF has put together $500 million for grant-based debt service relief—these efforts fall far short of what is needed. After all, the G20 would only suspend those nations’ official debt, much of the World Bank’s funds will be allocated beyond Africa, and the IMF initiative only relates to twenty-five designated countries (six of which aren’t African). For Africa, the missing link, undoubtedly, is China. As Africa’s largest creditor, with a history of “hidden lending” and employing interest rates nearly double those of development banks, it is clear that any recovery effort requires China’s multilateral engagement. Without it, well-intentioned relief runs the risk of doing little more than bailing out Chinese creditors, who in turn may be further encouraged to engage in unsustainable lending practices (as was the concern after the HIPC debt relief initiative of the early 2000s). However, the Chinese have been wary to step forward into this new and uncertain role as a globally responsible, development-oriented stakeholder. Their engagement thus far has been limited to an unspecified donation to the IMF’s relief fund and the personal donations of Chinese billionaire Jack Ma. With Washington more used to criticizing China than working with it, it is understandable why larger-scale Chinese leadership has been slow to come. The Guangzhou episode and Washington’s subsequent saber rattling have not made the U.S. task of constructive engagement any easier. In the weeks ahead, there will be no job more important than bringing China to the table on African aid and multilateral debt relief. In order to do so, the U.S. and the West will have to swallow the pride of thinking they can go it alone. So too will they have to resist the temptation of chiding China away. But in turn, it is high time for China to right the wrongs of its fast-and-loose lending, give real meaning to its “all-weather friendship,” and become the global leader it claims and seeks to be.

The Office of Foreign Assets Control (OFAC) of the U.S. Treasury has formally sanctioned on October 10 members of the Gupta family and associates, who are members of a “significant corruption network in South Africa.” Under the sanction, all Gupta property in the United States is blocked and must be reported to OFAC. All transactions by “U.S. persons” with the Guptas are blocked. In effect, the Guptas are barred from U.S. financial markets—presumably the aspect that will sting them the most. The sanctions are part of the Global Magnitsky Human Rights Accountability Act of 2017. The Gupta brothers—Ajay, Atul, and Rajesh—moved from India to South Africa in 1993. They are credibly accused of massive corruption involving public funds and public office, and the family is now counted as among the richest in South Africa. Ajay is usually regarded as the leader. Their companies are centered on mining and media, and Oakbay Investments, a holding company, is their best known enterprise. They were closely associated with former South Africa President Jacob Zuma, himself now facing trial for corruption. Among other things, one of Zuma’s sons worked for the Guptas. The influence, even control, exercised by the Gupta family over Zuma’s administration was commonly described in South Africa as “state capture.” First under investigation and subsequently facing trial, the Gupta brothers have apparently fled South Africa for Dubai.  The flight of the Guptas and OFAC’s move against them probably strengthens the hand of South Africa's current president, Cyril Ramaphosa. Within the ruling African National Congress (ANC), Ramaphosa is still fighting a rear guard action by Jacob Zuma and his allies as he seeks to implement anti-corruption and other economic reforms. Zuma has remained a powerful political figure, especially among the rural poor and among his fellow Zulus, who constitute approximately a quarter of South Africa’s population.  In a conference call that included reporters, Sigal Mandelker, the under secretary for terrorism and financial intelligence at the U.S. Treasury, acknowledge the role played by South African civil society in the struggle against corruption: “We commend the extraordinary work by South Africa’s civil society activists, investigative journalists, and whistleblowers who have exposed the breadth and depth of the Gupta family’s corruption.” Cooperation between the United States and South Africa against corruption may have a positive spillover to other aspects of the bilateral relationship, which has not been close.  

This is a guest post by Benjamin Silliman, research associate for Energy Security and Climate Change at the Council on Foreign Relations and Payce Madden, researcher in African development. South Africa’s 2019 elections are over and the ruling African National Congress (ANC) kept its majority, but by its smallest margins yet. Political graft and mismanagement of state-owned enterprises like Eskom, the indebted utility which supplies over 90 percent of South Africa’s power, is likely behind some voters’ disillusionment with the ANC. In the months before the elections, major blackouts were rolling across the country leading to an estimated loss of 1.1 percent of economic growth for the year. Although Eskom was eventually able to stem the blackouts before Election Day, underlying technical, financial, and management problems will continue to plague the governing ANC party as it struggles to show South Africans that it can sustain economic growth. At the root of Eskom’s recent service problems are technical faults in South Africa’s Kusile and Medupi power stations, which led to the loss of nearly 17,000 megawatts (MW) of generation capacity. At the same time, electricity imports from Mozambique were stopped by Cyclone Idai, creating another loss of 1,100 MW of electricity that Eskom relies on to power its grid. These faults forced Eskom to begin load-shedding — the deliberate interruption of electricity supply — to prevent putting more demand on the grid than it could supply. At the height of the crisis, South Africans had their power interrupted twelve times in a four-day period for two hours at a time affecting commercial, industrial, and residential entities. To manage blackouts, many South African businesses and individuals have backup diesel generators. However, due to Cyclone Idai’s disruption to diesel imports, the cost of using diesel generation rose as a result of the fuel shortage and higher demand. Even without disruptions, diesel generators are rarely an efficient solution to supply electricity: in many African countries where backup generators are used to supplement or support unreliable electricity grids, the cost of electricity can be up to three times higher than it would be if the grid were reliable due to individual fuel and maintenance costs for the generator. A severe lack of financing options for Eskom has many worried that the Kusile and Medupi power plants could be offline for more than a year. The government, looking for quick options to resolve the crisis, has suggested it will restructure the utility by breaking it into three separate entities. However, this solution would do little to manage Eskom’s massive debt of nearly thirty billion dollars, which is continuing to increase as the utility undertakes repairs on the down power plants. Restructuring also does little to address some of the most basic issues facing the county’s electric system: severe lack of financing, poor planning, and negligent maintenance of central generating units. For a growing nation, access to a reliable power supply is essential. According to the International Energy Agency (IEA), South Africa’s electricity generation grew by 51 percent between 1990 and 2016. 82 percent of this growth came from centralized coal power plants, while nuclear power accounted for 8 percent of the growth, wind energy 4 percent, and solar photovoltaic energy only 3 percent. In total, wind and solar power only account for 2.5 percent of South Africa’s electricity sources. Increasing electricity generation will be vital for South Africa’s continued economic growth and development. Already, South Africa has the highest electricity consumption per capita of any African country, and demand is likely to increase: although population growth is only slightly above the world average, South Africa, like much of the continent, is rapidly urbanizing. Johannesburg alone is projected to host more than ten million inhabitants by 2030. South Africa’s reliance on coal power to fuel its electricity capacity growth is problematic since the country faces poor financing options for large capital to build centralized power plants. Investment from development banks, including the African Development Bank’s New Deal on Energy in Africa, remains insufficient to meet energy financing needs. While financing for electric power has risen globally, investment in sub-Saharan Africa’s electrification decreased from 2013-2014 to 2015-2016. About a quarter of global investment in 2015 and 2016, or eight billion dollars per year, was for grid-connected fossil fuel plants, with China providing a fifth of this fossil fuel expansion financing. In South Africa, China has previously provided loans to Eskom to finish construction of the Kusile power plant. The exact terms of these loans have been kept secret, but the additional debt burden could have major implications for South Africa, which is already at risk of reaching a threshold level of debt-to-GDP. Despite these risks, Chinese lending remains an attractive — and, in some cases, the only — option to fill the financing gaps left by development banks and other major lenders. Distributed energy sources could offer South Africa a distinct advantage when building up their generation capacity, as they do not require single large loans, but rather an aggregation of smaller sources of capital, many of which may already exist around the country. Eskom currently supports interconnection, with energy export credits for high-voltage industrial power consumers. By owning their own generation capacity, industrial consumers would not only not only reduce the risk of loss of production due to power failure, but may also reduce their normal energy expenses by providing power to the grid when the plant is not operating at full capacity in exchange for credits. Bringing micro-grids to these power-heavy industries should be top priority for South African policymakers who are looking to better balance the demand for electricity and expand current renewable energy programs. Eskom currently does not support net metering for lower-voltage residential and commercial markets, reducing the incentive for residences and small businesses to provide their own power. Despite this, rooftop solar has gained some traction in South Africa with the Mall of Africa unveiling its new solar roof, the tenth largest in the world. A primary motivation for the installation was to reduce power demand on South Africa’s central grid system. This move mirrors a trend in developed countries around the world where policymakers are analyzing the potential for buildings to provide some of their own power, and at times even act as power plants. In the United States, power produced from buildings has already been relied upon during hot days when abnormal consumption put excessive demand on the grid. Both California and New York have begun implementing plans for energy-producing buildings, while the EU and Japan have issued goals to promote zero — or close to zero — energy buildings. Large residential and commercial buildings have one thing in common: they are often well-financed and have the incentive to pursue distributed energy options, especially given the long-term unreliability of South Africa’s energy infrastructure. To motivate more widespread development, South African policymakers should consider pushing Eskom to develop a policy on lower voltage net metering. Reducing demand or even supplying power to the grid could vastly ease the country’s growing pains. South Africa already has a robust policy model for renewable energy integration for dedicated power producers that it can use as a model for future development. South Africa maintains a target of 17,800 MW of low carbon capacity by 2030. In 2011, South Africa started its major policy initiative to promote low carbon sources, the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP.) The REIPPPP holds competitive auctions for renewable energy sources, capped at certain capacities depending on the source type. Winners of the auction are given a twenty-year power purchase agreement (PPA) with the utility and a feed-in tariff to improve economic competitiveness. According to the World Bank, as of 2014, fourteen billion dollars were already committed to the program. Prices for renewable energy have dropped significantly since the beginning of this program, with solar falling 68 percent and wind falling 42 percent. In the midst of an energy crisis, the government should consider expanding upon this central program to not only offer PPAs to dedicated power producers but also shorter-term contracts with large commercial or industrial entities or real estate developers. To reduce the utility’s massive infrastructure costs, an interconnection fee could be negotiated as part of the PPA. Capacity ceilings for the REIPPPP should also be expanded to more rapidly grow energy capacity and to encourage more companies to become involved. This solution is not technically easy to implement. Integrating distributed energy systems is a challenge for even robust electric utilities, but software and hardware solutions have become available to ease integration of intermittent, distributed energy sources into the grid. For example, better forecasting systems have allowed utilities to model demand with much more granularity, allowing the utility to better plan around consumer power production, and smart meters can accurately provide detailed two-way electric exchanges between a building and the grid. Battery storage technology to reduce the strain of intermittence has also become much more available, with prices continuing to decline. Given the immense challenge of securing financing to build and repair large central power generation, money spent on grid modernization efforts may be more fruitful. The greatest challenge, however, may be managing Eskom’s finances. The utility will not benefit from the departure of some of its largest customers as they reduce their dependence on the grid. This could potentially create two dangers: that Eskom could develop revenue problems limiting the growth needed to repay debts, and that many infrastructure, operating, and financing costs could be passed off to those who cannot afford alternate energy sources in the form of higher electricity prices. The process of promoting distributed energy must be well managed by the government to ensure that the electricity system does not break down as heavy consumers reduce their reliance on the grid. South Africa could explore more options for state financial support, with, for example, tiered electricity prices based on consumption to keep electricity costs low for less affluent consumers. They could also explore interconnection service fees where a percentage of energy savings for those off the grid are paid back to the utility for infrastructure costs, as is being tried in the state of New York. While South Africa will not be able to build sufficient distributed capacity fast enough to avoid the repairs needed for the two offline power plants, it may reduce the need for Eskom to invest in future centralized power plants. Avoiding the construction of more costly central power plants could provide Eskom some relief in the future given the limitations of current financing from development banks and other major lenders and the risks of accruing debt from lenders such as China. Already a leader in renewable energy policy in the continent, South Africa could prove to be an important model for how to integrate distributed energy resources in countries around the world. However, until significant changes are made, many South Africans may continue to stay in the dark.