Connect with us

Op-Eds

Fake It till You Make It Nations and Bling Bling Economics: Debt, Dictatorship and Underdevelopment

Once upon a time, financial recklessness was the preserve of resource-rich nations. Now, resource-poor African nations, their thoughtless leaders seduced into taking printed money circulated by the US Federal Reserve after the global financial crisis a decade ago, have become the new sultanates of debt distress. DAVID NDII ponders a different path.

Published

on

Fake It till You Make It Nations and Bling Bling Economics: Debt, Dictatorship and Underdevelopment
Download PDFPrint Article

Not too long ago, Angola opened an embassy in Nairobi on a quite well-appointed address on Redhill Road in the diplomatic suburb of Gigiri, a road I use frequently. You couldn’t miss it. It had an outlandish gate and a black granite signboard with gold lettering. I was rather intrigued that Angola would need such a large embassy in Kenya. I have made a point of observing how much activity was going on there— very little. I passed there the other day and lo and behold, the outlandish gold lettered black granite signboard was gone, replaced by a more modest one announcing the Botswana High Commission. The Angolan foray would have cost no less than $10 million, and I would imagine that Kenya was not the only country that Angola had spread its diplomatic footprint. What has changed?

Angola has squandered the oil bonanza of the last decade. Angola is Africa’s second-biggest oil producer after Nigeria, with a daily output of 1.6 million barrels of crude and 18 million cubic metres of natural gas. There is an economic principle that windfall earnings should be saved. Angola did not save. Instead, it leveraged the oil boom to pile up debt. Angola is China’s biggest debtor in Africa, owing US$ 23 billion accounting for about a fifth of Africa’s debt to China.

If Angola had set a windfall benchmark at $50 per barrel, its nest egg for the five and a half year oil boom (April 2009 to May 2014) would have been in the order of $100 billion on crude oil alone ie. excluding natural gas. A conservative investment yielding 5 percent a year would be earning Angola $5 billion a year to invest in infrastructure or whatever else it chooses. This is how Norway got rich on oil. Norway’s sovereign wealth fund, the worlds largest, is now worth a trillion dollars. If Norway was to pay dividends from the fund to its 5.2 million citizens, each would get US$9,000 a year.

There is an economic principle that windfall earnings should be saved. Angola did not save. Instead it leveraged the oil boom to pile up debt. If Angola had set a benchmark of $50 per barrel of petroleum, its windfall for the five and a half year oil boom (April 2009 to May 2014) would have been in the order of $100 billion on crude oil alone… A conservative investment yielding 5 percent a year would be earning Angola $5 billion a year to invest in infrastructure or whatever else it chooses.

They say once bitten twice shy. Not Zambia. When I was a college student eons ago, Zambia was a case study on how not to manage an economy. Zambia rode the post independence commodity boom into middle income status by the early seventies. At $600, Zambia’s income per person was one-third higher than the Sub-sahara Africa average. In Nairobi, Zambia’s heydays are represented by its well-appointed embassy property on Nyerere Road, overlooking Uhuru Park. When commodity prices receded from the late seventies, Zambia plugged its finances by borrowing – and borrowed itself into poverty. Over the next decade, Zambia’s foreign debt increased seven-fold, from one to seven billion dollars. By the mid-90s when it got HIPC (Highly Indebted Poor Countries) debt relief, average income adjusted for inflation was half of the mid-1970s level.

Zambia rode the post independence commodity boom into middle income status by the early seventies. When commodity prices receded from the late 1970s, Zambia plugged its finances by borrowing – and borrowed itself into poverty.

Copper prices surged again in the 2000s peaking in 2011 at $4.60 a pound, about the same in inflation-adjusted terms, as at the 1970s peak. In 2012, against the backdrop of retreating copper prices, Zambia debuted in the Eurobond market, borrowing $750 million. It also borrowed heavily from China. Copper prices have fallen again and Zambia is in debt distress. The eurobonds are now trading at around15 percent yield, almost three times the debut bonds 5.6 percent yield at issue. What this means is that the bonds for which investors paid $94 are now trading at $34. It means that Zambia is now effectively locked out of any more borrowing in the sovereign bond market. Will Zambia turn around its finances before the bonds are due for re-financing? Doubtful.

Zambia is only slightly less dependent on copper now than it was in the 1970s. Copper still accounts for two-thirds of exports. Zambia has no shortage of low-hanging fruit in terms of diversification options: it has plenty of idle arable land and underexploited tourism potential. Chile was once as copper dependent as Zambia. In fact, copper still accounts for half of Chile’s exports. But Chile has diversified its economy and worked its way up to being the first Latin American country to be admitted to the OECD club of rich countries. Interestingly, Chile has become a wealthy country without following the Asian Tiger holy grail of export manufacturing, but rather by diversifying to services and agricultural exports. Its other key exports are agricultural including horticulture, wine and fish, especially farmed salmon.

Chile was once as copper dependent as Zambia. Copper still accounts for half of Chile’s exports. But Chile has diversified its economy and worked its way up to being the first Latin American country to be admitted to the OECD club of rich countries. Interestingly, Chile has become a wealthy country without following the Asian Tiger holy grail of export manufacturing, but rather by diversifying to services and agricultural exports.

Historically, financial recklessness on this scale was the preserve of resource-rich African countries. But the disease has spread all over the continent. Resource-poor countries such as Ethiopia and Kenya are now just as reckless as the resource-cursed. In the past, resource-poor countries simply did not have access to the money to steal or finance megalomania. When they tried to do so by domestic borrowing and printing money, the macroeconomic feedback loop quickly kicked in and wreaked financial havoc. Moi learned this lesson. Mugabe did not. He ended up with a hyperinflation for the ages, and the demise of the Zimbabwe dollar.

There are two reasons why resource-poor countries have also caught the disease: the 2008 global financial crisis, and China.

Since the global financial crisis, which began in 2007 and properly set in the next year, the financial markets have been awash with money churned out by the US Federal Reserve and other central banks, thereby depressing interest rates to near zero, prompting money managers to go looking for better returns in emerging markets in what is known in market lingo as “hunting for yield”. Aggressive salesmen were everywhere scouting for and massaging the egos of potential borrowers. When Kenya set out to debut in the Eurobond market it indicated that it would raise a $500m “benchmarking” bond whose proceeds were to retire a syndicated bank loan borrowed two years before, and which was the only foreign loan in Kenya’s books at the time. By the time the issue was going to the market, it had grown fourfold to $2 billion. By the time it closed, the government had borrowed $2.8 billion.

Within weeks of the successful debut, the treasury mandarins were talking of Sukuks (Islamic bonds) and Samurais (Japanese Yen denominated bonds), like children accidentally locked inside an ice cream parlour. Other than the syndicated loan repayment of $600 million there is no trace of anything financed with the money.

Since the global financial crisis, the financial markets have been awash with money churned out by the US Federal Reserve and other central banks, thereby depressing interest rates to near zero, prompting money managers to go looking for better returns in emerging markets. Aggressive salesmen were everywhere scouting for and massaging the egos of potential borrowers. Africa Rising.

China is getting more than its fair share of flak for Africa’s debt distress. The fear of the Dragon is over the top. Unlike the Western banks and markets which are embedded in the Western power structure, China will have little recourse when countries default. It cannot run them through the mill we saw “the troika” run Greece when it went into debt-distress in 2009. The head of China Export and Credit Insurance Corporation, known as Sinosure was recently quoted lamenting the poor quality of China’s infrastructure loans abroad. He went on to disclose that the agency is already a billion dollars out of pocket on Ethiopia’s new railway, whose preparation he termed “downright inadequate”. “Ethiopia’s planning capabilities are lacking, but even with the help of Sinosure and the lending Chinese bank it was still insufficient.”

It has also been reported that China may offload its infrastructure loans to the secondary market. The plan is to sell the loans to the Hong Kong Mortgage Corporation which will in turn repackage them, dice them up and sell them to investors, thereby releasing liquidity back to the primary lenders such as China Exim Bank to make more loans.   This is not funny. First, the lenders admit that they have made dud loans. Then they follow this with an announcement that they will sell the same to investors. It is a scheme such as this, which mixed up low risk and high risk (a.k.a sub-prime) mortgage loans into securities known as Collateralized Debt Obligations (CDOs) that precipitated the erstwhile mentioned global financial crisis. More poignantly, the Dragons debt trap diplomacy as it’s been called, begins to look uncannily like hunting for yield.

That is the supply side. On the demand side, you have African leaders who have no ideas of their own. From import substitution industrialization, to neoliberal orthodoxy in the 80s, to poverty reduction strategies and now infrastructure-led growth, they wander thoughtlessly from one aid paradigm to the next, all the while living up to Fanon’s prediction that they were destined to become “a transmission line between the nation and capitalism.”

The bigger problem is delusions of grandeur. Seemingly every one of these African big men has a Lee Kwan Yew complex. Even Uhuru Kenyatta, a man who couldn’t run an orderly kindergarten in a children’s park if his life depended on it, is prone to bouts of megalomania during which he comically dons military fatigues and goes around doing General Park Chung-hee skits.

On the demand side, you have African leaders who have no ideas of their own. From import substitution industrialization, to neoliberal orthodoxy in the 80s, to poverty reduction strategies and now infrastructure-led growth, they wander thoughtlessly from one aid paradigm to the next, all the while living up to Fanon’s prediction that they were destined to become “a transmission line between the nation and capitalism.

Africa has its economically successful nations: Botswana, Namibia, Mauritius, Cape Verde and the Seychelles. What do these successful African nations have in common? First, they are all small. Three of them are small island nations. Namibia is large geographically, but its population is only 2.5 million people. Second, they are also successful democracies. The five are consistently the highest ranked African countries in democracy league tables such as the Economist’s Democracy Index and the Freedom House Index.

Why are Africa’s small countries more politically and economically successful than the big ones?

Size matters. It is easier to build a small nation than a big one. Small islands are natural nations, hence it should not surprise that all the small island nations are successful. Madagascar is Africa’s sole big island nation, and it is not successful at all.

The big African countries are almost invariably very ethnically diverse. Recently, someone on social media asked me why benevolent dictatorship cannot work in Africa the way it worked in South Korea. My answer was a question: what tribe will the dictator be? He has not responded. Proponents of developmental autocracies fail to recognize that the East Asian countries are old nations, not the arbitrary colonial creations that African countries are. Korea is a culturally homogenous society with unified dynastic rule going back to 900 AD, and a political history, known as the Three Kingdoms, going back another millennium. The Thai Kingdom dates back 700 years.

Proponents of developmental autocracies fail to recognize that the East Asian countries are old nations, not the arbitrary colonial creations that African countries are. Korea is a culturally homogenous society with unified dynastic rule going back to 900 AD, and a political history, known as the Three Kingdoms, going back another millennium. The Thai Kingdom dates back 700 years.

Ethiopia is Africa’s oldest nation-state, and the only one that is not a colonial creation. It is also one of the largest and most diverse(100 million people, over 80 officially recognized ethnic groups). After the Derg’s reign of terror, Ethiopians adopted a constitution based on a loose ethnic federation. But Meles Zenawi could not resist the allure of the developmental autocrat. He borrowed and built like a man possessed but the economic miracle did not materialize, and Ethiopians, tired of autocracy without prosperity, took to the streets. The edifice has unravelled. The leadership is coming to terms with a historical fact that the rest will be reckoning with sooner or later: political development precedes prosperity.

See all comments
David Ndii

David Ndii is one of Kenya's leading economists and public intellectuals.

Continue Reading

Op-Eds

Khashoggi Murder: Is There a Double Standard at the United Nations?

The UN’s silence on Khashoggi’s much-publicised murder was surprising for many because his killing had created shockwaves globally, not only because it had occurred inside an embassy but also it had apparently been carried out in a cruel medieval manner that entailed torture and dismembering of body parts.

Published

on

Khashoggi Murder: Is There a Double Standard at the United Nations
Download PDFPrint Article

In June this year, Agnes Callamard, the United Nations rapporteur on extrajudicial, summary or arbitrary executions, made a startling statement that is not usually heard within the hallowed chambers of the UN. Not only did she implicate a rich member state in the killing of the Saudi journalist and Washington Post columnist Jamal Khashoggi, she also castigated the UN for not doing enough to address the issue.

Callamard told the UN Human Rights Council, whose members include Saudi Arabia, that Khashoggi’s murder “constituted an extrajudicial killing for which the State of the Kingdom of Saudi Arabia is responsible”, implying that Saudi prince Mohamed bin Salman, the de facto head of the Saudi kingdom, may have played a crucial role in the brutal murder of the journalist at the Saudi consulate in Istanbul in October 2018. She also criticised the UN Secretary-General Antonio Guterres for failing to demand accountability for the murder of the journalist, adding that “the silence of this intergovernmental body and lack of measures were a disservice to the UN and to the world”. (Although Callamard reports to the UN, she is not a UN staff member.)

The UN rapporteur argued that because the UN has remained quiet on the killing of the journalist, who had been a critic of the regime in Saudi Arabia, it has put at risk the lives of all journalists and has violated its own mandate to protect freedom of speech and expression. Journalists and human rights activists around the world had said that the killing of the journalist was a direct assault on freedom of the press. She called on the UN and its member states to carry out an international criminal investigation on the murder.

The UN Secretary-General responded that the only way to carry out such an investigation was through a UN Security Council resolution sanctioned by the Council’s five permanent members, namely the United States, Britain, France, Russia and China. However, this is highly unlikely because at least one of these members – the United States – has been reluctant to push investigations into the murder further. President Donald Trump, who is more keen on selling arms to Saudi Arabia rather than on ensuring that human rights are respected, has been lukewarm about Khashoggi’s murder, and has even hinted on several occasions that doing business with the Saudis is more in the US national interest than ensuring that justice for Khashoggi is done. Callamard claims that the US government did little to assist her investigation, and that she was not granted access to the CIA or the US Department of Justice.

The UN Secretary-General responded that the only way to carry out such an investigation was through a UN Security Council resolution sanctioned by the Council’s five permanent members, namely the United States, Britain, France, Russia and China

The UN’s silence on Khashoggi’s much-publicised murder was surprising for many because his killing had created shockwaves globally, not only because it had occurred inside an embassy but it had apparently been carried out in a cruel medieval manner that entailed torture and dismembering of body parts. The fact that his body has not been found to this day also suggests that perhaps it was burnt beyond recognition or has been buried in a secret location.

Callamard’s call to make the Saudi regime accountable for Khashoggi’s death has largely fallen on deaf ears, with the Saudis insisting that they have carried out their own investigations and that the culprits are facing trial. No one quite believes that these trials are actually being conducted by impartial courts or if even they are, whether the suspects are actually the ones who carried out the killing, which was conducted in hit squad manner that could only have been sanctioned by the highest echelons of the Saudi government. One right-hand man of Prince Salman is widely believed to have overseen the murder but is not among those being prosecuted. Callamard says she received no cooperation from Riyadh when she conducted her investigations, and that Saudi officials have been largely opaque about the case.

It is possible that Callamard is unaware of the limitations of the UN or how international diplomacy works? Or maybe she believes that in her role as an impartial UN rapporteur she can push the international community to do the right thing.

What most people don’t realise is that the UN may appear to be a neutral, independent body, but its decisions have always been influenced by its most powerful and influential member states, who almost always have their way when it comes to handling international crises. For instance, the United States did not seek UN Security Council approval before invading Iraq in 2003, nor did the UN reprimand the US for taking this illegal action.

People also forget that a sizeable number of the UN’s 193 member states are dictatorships or repressive regimes that do not care much for human rights. Freedom of expression is not on top of the agenda of influential member states like China and Russia, for instance. So, as the setter or moral or ethical international standards, the UN is hardly the place to go.

It is possible that Callamard is unaware of the limitations of the UN or how international diplomacy works? Or maybe she believes that in her role as an impartial UN rapporteur she can push the international community to do the right thing.

In the Khashoggi case, Saudi Arabia, a big donor to the UN and a key ally of the UN’s biggest contributor, the United States, will do all it can to prevent an international criminal investigation. Saudi Arabia has already said that it will reject any attempt to undertake an international inquiry. The kingdom’s main allies, the United Arab Emirates, Bahrain and Egypt, have also rejected Callamard’s 101-page report, which does not mince words when naming those who were most culpable for the murder of Khashoggi.

Hush money

Why have the UN and the US remained silent on this issue? Well, partly because Saudi Arabia has bought their silence. The US is keen to keep its relationship with one of the biggest buyers of US-made arms and military hardware, hence the lukewarm response to the murder. And the fact is that the UN Security Council’s five veto-holding permanent members have never really been committed to world peace because wars keep their military industrial complexes going. These countries are the largest manufacturers and suppliers of arms. When wars occur in far-off places, arms manufacturers in these countries have a field day. Wars in former French colonies in Africa keep France’s military industrial complex well-oiled. Wars in the Middle East are viewed by British and American arms manufacturers as a boon for their arms industries.

If there were no wars in the world, the arms industry would have fewer or no customers. It is no surprise then that Donald Trump’s first foreign visit was to Saudi Arabia, which has been buying billions dollars-worth of arms from the United States for decades. Arms from the US have fuelled Saudi Arabia’s ongoing war in Yemen. Thus Saudi officials were neither embarrassed nor dismayed when Trump held up a placard showing the newest weapons his Saudi clients could get their hands on and use in their campaign in Yemen. The connection between military sales and silence on human rights violations became acutely visible in that particular photo opportunity.

In a world where nuclear disarmarmament deals are casually broken by the President of the United States because he has a feud with Iran, the UN remains a paralysed specatator. It has nothing to say, nothing to contribute. No pressure is placed on the United States – which contributes up to a quarter of the UN’s budget – to rethink its policies. There are no press releases issued on the dangers that the cancellation of the deal will pose to world peace.

On the contrary, wars and other disasters provide the UN an opportunity to fund-raise. The UN’s campaign in Yemen, for example, is not about ending the war, but raising donations for the millions who are suffering as a result of the Saudi-led war. Wars and other calamities fuel various United Nations agencies, including the refugee agency UNHCR and the World Food Programme, whose coffers get quickly filled when disaster strikes, which enable their employees to continue earning hefty tax-free salaries.

The UN is also not keen not to upset a key US ally and a big contributor to its coffers. Saudi Arabia uses its vast oil wealth to cover up its crimes. In March 2018, for example, the UN received nearly $1 billion from the Saudi prince as a donation towards the UN’s efforts at alleviating a humanitarian crisis in Yemen – a crisis that would not have occurred if the Saudis had not bombed Yemen in the first place. The war in Yemen has killed several thousands of people and created a humanitarian crisis in which more than 20 million people are in need of basic supplies.

Saudi Arabia – the perpetrator of this war crime – is now trying to be the face of compassion in Yemen. The donation was a great photo opportunity for the prince, who was seen giving the money to a smiling UN Secretary-General at the UN’s headquarters in New York. Antonio Guterres did not use the opportunity to urge the prince to stop the onslaught against the Yemenese people. In fact, the UN has remained rather muted throughout the crisis in Yemen, and only speaks out when soliciting for donations for the traumatised Yemenese population.

And in 2016, after a leaked UN report on children’s rights violations became public, the then UN Secretary-General Ban Ki-moon admitted to removing Saudi Arabia from a list of countries that had violated children’s rights. This admission shocked the world but did not result in the resignation of the Secretary General.

Hush money has bought the UN’s silence on human rights violations that the Saudi state has committed against the people of Yemen and against its own citizens, including women who are jailed for breaking Saudi Arabia’s draconian laws that punish female car drivers and torture those who dare defy the regime. Ironically, Saudi Arabia even has a seat at the UN Human Rights Council, which has left many human rights defenders equally amazed and disgusted.

That is how international diplomacy works at the UN. Keep quiet when big donors violate human rights, but be vocal about violations committed by small, insignificant countries whose voices are drowned out at the UN Security Council and other UN bodies. Talk about women’s rights in Afghanistan but keep quiet about torture chambers in Saudi Arabia. Scold a poor country like Liberia for not doing enough for children’s education, but ignore the plight of children who are sexually abused or trafficked in the United States. Castigate former child soldiers from Uganda or the Congo for crimes against humanity but ignore the war crimes and mass murders ordered by President George Bush and Prime Minister Tony Blair in Iraq.

If anyone still has any doubt that the UN is fair and impartial, its response to Khassoggi’s murder should lay to rest any such illusions.

Continue Reading

Op-Eds

War Games: The Truth behind the Government’s Sudden Attack on the Sports Betting Industry

It thus appears that the assault on the betting companies, far from being a general money-laundering investigation, is actually part of the weaponisation of anti-corruption to take down the said well-moneyed senior politician.

Published

on

War Games: The Truth behind the Government’s Sudden Attack on the Sports Betting Industry
Download PDFPrint Article

For a government that has earned a reputation for its lackadaisical approach to matters corruption—other than those of its political enemies, that is—the resolute assault it has launched on the sports betting companies is intriguing. According to media reports, it was triggered by the Betting and Licensing Control Board writing to the Financial Reporting Centre asking for an investigation into money laundering in the industry. The Financial Reporting Centre is the unit of the Central Bank responsible for money laundering surveillance.

This sequence of events is suspect. Kenya’s reputation as a money-laundering hotspot is well documented, and the government has been under considerable pressure from the United States government to clean up for a long time. One of the deals underpinning the Jubilee government’s rapprochement with President Obama was a commitment to join the Egmont Group, a multinational collaborative platform for combating money laundering and terrorism financing. The 2019 International Narcotics Control Strategy Report submitted to the United States Congress by the country’s Bureau of International Narcotics and Law Enforcement Affairs notes that “despite some progress, Kenya has not fulfilled all of its commitments to join the Egmont Group.”

For a government that has earned a reputation for its lackadaisical approach to matters corruption—other than those of its political enemies, that is—the resolute assault it has launched on the sports betting companies is intriguing. According to media reports, it was triggered by the Betting and Licensing Control Board writing to the Financial Reporting Centre asking for an investigation into money laundering in the industry.

The point here is that it is difficult to believe—given America’s intense interest in this matter—that the betting industry has not been on the government’s anti-money laundering radar all along, especially because some of the industry’s foreign investors have been cited in connection with money laundering by the American government. This being the case, it stands to reason that the government could have opened an anti-money laundering investigation on the betting companies without much ado. Few would have been surprised. And it is quite unusual for sanctions to be meted out as part of an investigation, because as far as we know, there is as yet no determination that individual betting companies have been found culpable. Even money-launderers who are operating legally are entitled to due process.

It becomes even more confounding when the government speaks from both sides of the mouth. President Uhuru Kenyatta has been quoted maintaining that the investigation is purely a tax compliance matter: “Some betting firms have been hoarding taxes but we have managed to push them to pay and we will continue doing so. Those in the betting companies are our friends but we have to agree the government must get its rightful share to build cultural centres and other developments.” It is noteworthy that among the local investors profiled since the onslaught began are prominent establishment figures who featured prominently in Jubilee election campaign financing.

First, just how big is this industry? A government investigation reported the industry turnover at Sh200 billion a year. It is also reported that there are 12 million mobile phone-based betting accounts. But according to the Finaccess 2019 survey report, 1.9 per cent of adult Kenyans participate in sports betting. The Finaccess survey tracks financial inclusion, and is conducted once every two years by the Kenya National Bureau of Statistics in partnership with the Central Bank of Kenya and the Financial Sector Deepening (FSD) Trust. The 2019 survey was administered on a nationally representative sample of 11,000 households.

The figure of 1.9 per cent of adult Kenyans translates to 500,000 people. This in turn suggests that on average, punters spend Sh400,000 per year, or Sh33,300 per month on betting. The average annual wage in 2018, as reported in the Economic Survey, was Sh730,000. If we assume that the punters are spread across the income spectrum, that is, they are not concentrated in the high income groups, it would suggest that punters are spending more than half their income on gambling. This does not seem plausible.

It becomes even more confounding when the government speaks from both sides of the mouth. President Uhuru Kenyatta has been quoted maintaining that the investigation is purely a tax compliance matter

The Sh200 billion turnover is also inconsistent with the national economic data. The turnover of an industry corresponds to the gross output of a sector in the production accounts. A gross output of Sh200 billion would be significant considering that it is larger than that of “accommodation and food services” which captures the entire tourism, domestic, hospitality and restaurant services. As per the International Standard Industrial Classification (ISIC) the betting economy falls under the “arts, recreation and entertainment” sector. However, in the production accounts published in the Economic Survey, it is lumped together in a residual category (“other service activities”) although it is reported separately in the GDP figures (GDP is obtained by deducting intermediate inputs and indirect taxes from gross output). The gross output of “other service activities” in 2018 was Sh154 billion, less than the claimed turnover of betting alone, while the GDP for the “arts, recreation and entertainment” economy is only Sh10 billion. Either the statisticians have missed it altogether, or the Sh200 billion turnover figure is wrong.

SportPesa, reportedly the dominant firm in the industry, has published a statement disclosing its 2018 turnover as Sh20 billion. The only market share figure I could find is reported by the financial market information blog, The Kenya Wall Street, which puts SportPesa’s market share in 2016 at 76 per cent, and a small online survey of 300 respondents conducted by Linet Kwamboka of Data Science Ltd. in January 2019, in which two-thirds of the respondents gave SportPesa as their main betting platform (Betting In Kenya, a Menace or an Income?) These figures suggest an industry turnover in the Sh25 billion to Sh30 billion range.

Even this lower figure does not reconcile with the national economic data. As observed, using the “value-added” approach, the GDP is obtained by deducting intermediate inputs from gross output. In aggregate, these add up to about 45 per cent of gross output meaning that GDP is 55 per cent of gross output. That said, intermediate outputs vary a lot by sector, from 20 per cent in financial services to 70 per cent in manufacturing.

We do not know where the industry falls, but according to a data visualisation published in the Daily Nation titled A Gambling Nation: Betting dominates Kenya’s online searches, the betting industry spent Sh22 billion on advertising in 2018. Advertising expenditure would go into intermediate inputs. This outlay alone would reduce the industry’s GDP to no more than Sh8 billion, about three-quarters of the entertainment economy’s GDP. Still not credible. The advertising figures are a likely source of this inconsistency. According to the source, the total amount of spending on advertising in the country was Sh132 billion, and the main media on which it was spent were television, print and radio. But the turnover of the entire mainstream media industry in Kenya is no more than Sh25 billion, which begs the question where the Sh100 billion-plus was spent.

There is also another anomaly. Betting is said to have grown very rapidly; for instance, the Kenyan Wall Street blog reports a 2016 turnover of Sh56 billion which has supposedly grown to Sh200 billion, fourfold growth in two years. The rapid growth should reflect in the GDP. It does not. The gross output of “other services” increased by only Sh29 billion over the two years, and the entertainment sector GDP by only Sh2 billion. It does look like the statisticians are not capturing this growth in the national economic data.

An industry turnover of Sh25 billion-Sh30 billion together with the figure of 500,000 bettors estimated by Finaccess, translates to an average gambling expenditure of between Sh4,000 and Sh5,000 per month. This is a more plausible figure, and it is also in line with the figures reported by the respondents of Linet Kwamboka’s online survey. These figures are telling us that most punters spend between Sh500 and Sh1500 on betting a week—beer money, literary; the Managing Director of Kenya Breweries recently lamented that sports betting has become a serious competitor. By and large, the much-lamented gambling epidemic appears to be no more than substitution of one vice for another. No doubt there are gambling addicts, there always were, just as there are alcoholics.

SportPesa, reportedly the dominant firm in the industry, has published a statement disclosing its 2018 turnover as Sh20 billion. The only market share figure I could find is reported by the financial market information blog

We are still left with the Sh200 billion figure though. Where does it come from? The authorities have not been forthcoming on how the figure was arrived at. I see two possibilities: a purely technical accounting issue, and the money laundering dimension. The accounting issue is well illustrated by this account of The Broker, a punter who contributed to this discussion on twitter:

Img.1

Although The Broker gets the gist of it, his math is actually incorrect. His outlay of Sh10,000 generated three betting transactions totalling Sh22,000 (two Sh10,000 bets and one Sh2,000 bet) and he lost Sh7,000 not Sh8,000. The Sh7,000 is the betting company’s total revenue from his betting activity. Let us extrapolate: if we work with the Finaccess figure of 500,000 punters, the Sh. 200 billion turnover figure requires an average of Sh33,000 of betting transactions per person per month, which is within striking distance of The Broker’s figure of Sh22,000.

The Sh200 billion turnover is being buttressed by another figure, that of the 12 million betting accounts held with the mobile phone companies. If each account represented a unique customer, then those 12 million accounts would be held by half the adult population. We also know that the vast majority of bettors are the youth. The 12 million accounts figure is about the same as the total population of the 20-35 age group, which would suggest that virtually every young person has a betting account. That is a stretch and it stands to reason that some punters will have betting accounts with different companies. Still if we assume that each bettor has four accounts on average, this still translates to three million unique accounts, six times the Finaccess figure of 500,000. In its statement, SportPesa gives a figure of 700,000 visitors during the first half of 2019.

Img.2Part of this conundrum may be explained by another contribution to this debate on Twitter by one Jerry, who claims to have opened over 10,000 phantom betting accounts. Pressed to explain why, Jerry said that it was paid work. Why would betting companies pay people to open phantom accounts? The readily apparent reason is to inflate the size of the business and by so doing be able to pass off laundered monies as revenue, as would massive advertising and high profile sports sponsorships. It turns out that the betting epidemic may not be as big as it is made out to be and indeed, the Finaccess findings may be a more accurate reflection of the size of the industry.

According to a source quoted in the media, the Interior Ministry has “established that three politicians are involved in the business through proxies in the firms suspended on suspicion of money laundering”. The article goes on to report one of the issues under investigation as “whether a well-moneyed senior politician is among the shareholders of one of the big suspended firms through a company registered in a tax haven which is being used to launder money stolen from public coffers”.

No prizes for guessing who the well-moneyed senior politician is.

It thus appears that the assault on the betting companies, far from being a general money-laundering investigation, is actually part of the weaponisation of anti-corruption to take down the said well-moneyed senior politician. The vitriolic, lawless modus operandi accords with the manner in which this political warfare is being prosecuted generally. As is Uhuru Kenyatta’s statement—for the betting companies are indeed his friends who, unfortunately for them, have become collateral damage.

It is also telling, I think, that the onslaught on the betting companies has coincided with the high profile arrests and opening of prosecutions in the Arror and Kimwarer dams corruption case. Among the revelations from the investigation is that the money laundering trail led to London and Dubai—both are members of the Egmont Group.

From this we can infer that the Government was quite happy to cozy up to the industry until the William Ruto takedown opened a Pandora’s box. Hitherto, it mattered not whether the betting business is a Sh20 billion or Sh200 billion business, whether it was evading taxes, fuelling a gambling epidemic, or even laundering money for drug lords, human and wildlife traffickers and terrorist networks. You can get away with all that, and even buy protection for all of that, just as long as you steer clear of the struggle for power.

Continue Reading

Op-Eds

In Memory of Chris Msando: Murder Most Foul

Mr Christopher Msando was the slain Independent Electoral and Boundaries Commission ICT manager, who was assassinated days before the disputed August 8 2017 elections.

Published

on

Download PDFPrint Article

Dear Chris,

It has been two years since we last spoke. A lot has happened, while you have been away. Eva, Allan, Alvin and Allison miss you a lot. The agony of your mother continues to haunt us. The sorrow of your sisters, brothers and friends weighs heavily on many. But the hope of a better tomorrow still beckons. Hope that your death and that of many others was not in vain.

Let me tell you what happened after your brutal torture and murder. Your assassination was roundly condemned. Announcements made on investigations went nowhere. The 8 August 2017 elections proceeded. You remember the concerns you always raised about the electronic transmission of results? It played out in exactly the way you and others feared it would. The system froze at 8:30 pm on Election Day and what happened thereafter, remains a mystery.

The Chairman of the IEBC (Independent Electoral and Boundaries Commission) could not confirm or deny if the system had been manipulated. He gave the Glomar response. The one that brings chills down the spine, reminding one on why you paid the ultimate sacrifice. Why they permanently got rid of you. They knew you would have detected and made known the manipulation of the transmission of the presidential result. The games you had alerted the Commission to. The “tunnel” created to the servers. Those servers, which like your murderers, continue to be kept in secrecy.

I will spare you, my brother, the details of what happened thereafter. Baby Samantha Pendo is too young, to tell you of her ordeal under the security forces. Unfortunately, there are more than 100 young men and women lying closer to you with more credible testimonies than I could ever deliver. The lives lost in the pursuit of political interests. In the struggle for electoral justice. The collateral damage in the quest for political and economic control by a tiny elite – the sons of Kenya’s first President and Vice President, respectively. The reign of the dynasties and the clamor of the so-called Hustlers to find a place in the ruling class.

My brother, I know how much you cared about your work at the IEBC. So, indulge me in a bit of gossip that I know you disliked. Do you know that your position is still vacant at the IEBC? Your shoes are seemingly too big to fit. Oh, and the rest of the Commission is in shambles. I am sure you remember the Commissioner with long dreadlocks. The one you often appeared on television with to explain how the KIEMS (Kenya Integrated Election Management System) gadgets worked. Naively thinking that your honesty was enough to change a path the powers had destined years before you started your jobs. Thinking that you could out-manoeuvre ‘the system.’ The real owners of the country. She resigned before the October election.

And that young man who was hired to manage the Secretariat? That one with previous zero management experience. The one who pleaded for your director to be brought back to the Commission after he had been suspended. The one who feared that with you in charge, their plot would be foiled. The one who was among the last people you had a meeting within the office shortly before you disappeared. The one who asked you to return to the office after your television presentation. Yes, the one who was always close to the powers that be. The political class abandoned him. And do you know what happened next? Three Commissioners resigned in solidarity with the young man. I know it will come as a surprise to you that the fluent Swahili-speaking Commissioner was among those three. But your Chairman is still hanging in there, with two unlikely allies. Those two Commissioners who disrespected him the most. The ones who openly defied him all the time.

My brother, I digressed. I know you are curious to know what happened in 2018. Dr. Miguna Miguna swore in the People’s President Raila Odinga on 30 January 2018. It was one of the shortest terms in office. It lasted one month, for he voluntarily gave it up on 9 March 2018. The country was perplexed to see him shaking hands with “his brother” President Uhuru Kenyatta at Harambee House. In the Kenyan style of avoidance disorder, we resorted to humor and labelled it a Handcheque. The country was told that the journey to Canaan was still on. The crocodiles had disrupted it but that their team of experts would build bridges to deliver Kenyans to Canaan. Only if they knew how black people are currently ill-treated in Canaan, they would not dare promise us that! Millions of shillings have been spent on “collecting views” from wananchi. And yet, the report of the experts was probably finalized before they even started their rendezvous. It is the usual elite bargain. The dynasty ganging up to change the constitution to perpetuate their hold on power and the economy.

Speaking of the economy, Chris, it is in peril. According to data from the Central Bank of Kenya, as of January our total debt stood at 5.2 trillion, one of the highest in Africa giving us a debt ratio to GDP of 56%.

If it were not for the remittances from the Diaspora averaging Ksh 24 billion per month, the recently floated kachumbari bond, the bailout by the World Bank among other fiscal policies, the situation would have been worse. Corruption is at its highest peak. According to the Corruption Tracker website, the total amount of money stolen from public coffers stands at a staggering KES 8,061,872,800,000 since 2014. The intra-Jubilee Party fights have one silver lining as the different factions are competing to expose each other. Each day they wash their dirty linen in public, allowing us to have a glimpse of the extent of their theft.

Chris, I know you do not have much time to read all this. You have better company. I can imagine what it must be to listen to the Kenyan heroines and heroes of the democratic struggle who rest in peace with you. The numerous men and women murdered by the Kenyatta I and Moi regimes. Those who lost their lives in the various post-election violence episodes. Those who paid the ultimate price in the liberation struggle. But spare me a few more minutes to tell you about the latest in our political machinations.

I will invoke the name of the love of your life to get your attention. Do you remember Eva’s speech at your funeral service? It was moving and powerful. Her words, “may you not have peace”, continue to haunt us each day. Collectively as a country, we have found peace elusive. Those high-ranking politicians who tried to malign you, to cover up your assassination, many of them are now claiming that their lives are in danger. It is as if the hunter has become the hunted. Remember those who refused the services of foreign intelligence services to unravel your murder? They are now busy visiting those foreign countries in the name of capacity building to undertake investigations. Oh, my friend, Chris, I can hear your quintessential booming laughter.

You must be saddened to see the hopelessness among the youth. The unemployment rate is unsustainably high. There is a sustained gutting down of our education sector with a Cabinet Secretary who de-emphasizes university education. The running down of the health services with no respect for the nurses and doctors. The pain of farmers who have no competitive prices for their maize and yet the cartels are bringing in imports. The extra-judicial killings of young men in marginalised neighbourhoods. The depression of a nation, the devasting mental illness with the associated spike in suicides, femicides and homicides. The plunder of our environment in the race for resource extraction.

Knowing you, I must stop enumerating the problems. You were always the ultimate optimist, pragmatist and problem solver. There is no challenge that was insurmountable to you. You always defined the challenge and provided options, even on what appeared to be impossible tasks like protecting the servers!

Chris, I will finish on a rather positive note. That despite the gloom, there is hope. Young men and women are organizing on social media in ways unimaginable to those of our age. They have initiated social justice centres throughout the country to push back on extra-judicial killings. The #SwitchOffKPLC and The DeCoalonize movements are leading on fighting off the energy cartels and for environmental justice. The fledging Kenya Tuitakayo Movement, continues to unify Kenyans around common objectives. The Limuru III meeting on 7 July re-energized the calls for a grass-root based leadership to secure the leadership of the State and defend the 2010 Constitution. New political parties such as the United Green Movement, Ukweli Party, among others promise alternative leadership to the country. There is hope that the struggle for social, political and economic liberation is not in vain.

Let me stop here for now, for I know that on this second anniversary of your murder, there are many others waiting in line for your attention.

Rest in peace my brother.

My very best regards,

Miriam

Continue Reading

Trending

Copyright © 2018 The Elephant. All Rights Reserved.