Headline
There are immense opportunities in Africa, but significant and burdensome barriers remain in the way for benefits to be realized.
About the interview
In March 2022, PRISM spoke with East Africa specialist and country risk analyst, Andrea Bohnstedt. During our conversation, we spoke significantly about Kenya and the challenges that the country faces, but also more broadly about the political, economic, and social challenges facing Africa in the short and near term. Andrea shared with us the potential economic risks that lay ahead and how the region’s relationship with China and the West may be changing.
Key takeaways
Politics matters. Unlike in Europe and the US where, historically, politics rarely directly impacts one’s life, many institutions do not deliver in Africa. So citizens perceive elections as more critical to their economic and personal safety and development.
Relative to the rest of its region, Kenya is well positioned in several ways, but many opportunities depend on overcoming medium-term political challenges like instability, weak institutions, and insufficient infrastructure. There is not yet a clear path forward.
The “big” narratives about Africa being on the verge of breaking out and the burgeoning African middle class are often overblown and are unhelpful in having an accurate view of the continent or specific countries.
The potential for perceptions and understanding to improve may be on the horizon due to technology: It will become easier and easier to watch foreign content, derive pop culture references, and generate a picture of real life in other places, and that will be helpful on this front.
The Interview
The conversation below has been edited for style, clarity, and brevity.
PRISM: It’s great to chat, Andrea. Thank you for taking the time to speak with us about the future of Africa. To get started, I think it would be great if you could tell us a bit about yourself and how you got interested in Africa.
Andrea Bohnstedt: I suppose the shortest version is that many years ago I was bright-eyed, bushy-tailed, idealistic, and young, and I started working in the development sector having great expectations about what could be done in that space. Over time, I became progressively more disillusioned with the aid and development industry. After two years in Uganda, I moved back to Germany – to Frankfurt – to work for the international consulting department of what was then Bankakademie, now Frankfurt School of Finance and Management. But, I didn’t find this private-sector side of the development industry that much more satisfying either: You are mostly stuck executing other organizations’ concepts.
I really wanted to get out of Frankfurt. I responded to a job ad looking for an Africa economist with a company that at the time was called WorldMarkets Research Center (WMRC) but was in the process of being acquired by Global Insight – now IHS Global Insight. That was my transition to country risk analysis, and I still enjoy getting paid to figure things out. The company back then did not have much space for career progression at the time, and after three years, I moved on and started working independently. I mostly work on Kenya assignments and to some extent the broader region. Now, I focus more on in-depth work rather than general analysis. It's still fun, and that is because I am getting paid to figure things out and because sometimes you get to tell people: "Well, I told you so, no?"
PRISM: Awesome. Great introduction, and I think we all agree that one of the fun parts of this job is getting paid to figure stuff out! I hope that this doesn’t seem like too broad of a place to start, but seeing as I have not worked on Africa too much and because probably the people who will read this might not be too familiar with the issues on the continent either, a good place to start would be to chat about what the general state of play is in Africa with a specific focus on your specialty area of Kenya. Can you lay out what is happening there today politically, economically, and socially? Where are we in historical terms?
AB: So, when someone asks me a question like this – that is what’s the current state of play in Africa or what should I invest in Africa or wherever else –, I always ask: What's your interest? What do you need or want to know? What are you good at, what’s your background? Like any other country, how we talk about these things is highly dependent on what we are looking at, what the alternatives are, what you bring to the table. Kenya is an interesting country because it has a lot of potential, but it seems to be caught in this weird dynamic of having a lot of potential, a lot of dysfunction – a lot of which has roots in its colonial past – and a lot of resilience.
In the short term, I think that several challenges are going to be made worse by the fact that Kenya is staring a fiscal and debt crisis in the face. Over the medium term, I think there is a lot of potential, including in areas much broader than just Kenya itself and having to do with technology, and other regional issues, such as the market expansion from the DRC just having joined the East African Community, Kenya’s role as a hub and entry point for the region, its relatively lower donor dependence and entrepreneurship. But as I mentioned, Kenya also does have its dysfunctional dynamics, which in some cases stretch back to the time of independence and colonialism. To put it in context, the current president is the first president’s son. So, really we are looking at just one generation of independence. The Kenyan institutions, its education system, and so on, are all quite recent, most with a heavy colonial legacy.
So, on one hand, you have the potential with technology in the country and the fact that Kenya is really the gateway to East Africa in an increasingly broad way. But on the other hand, you have the political dysfunction and corruption that is so entrenched in life here that it's hard to see how you can make a significant difference with that in the medium term.
PRISM: A lot of what you’re saying sounds positive and it seems like there are many areas for potential, but a lot of that potential is being held back by political dysfunction and instability. Is that a reasonable way to put it?
AB: Yes, I think that is fair but with the disclaimer that you need to dig a bit and consider the impacts of colonialism, which only ended within the lifetimes of our parents. This legacy is still quite influential and you see it (e.g., in unfair trade regimes and the fact that the US and EU focus mainly on bilateral trade agreements). These all influence what is going on today, too.
I do think that the issue of weak institutions is a problem at the domestic level. When institutions are weak and there is no stability, who holds political office is immensely important to you as an individual. In Europe, it was – at least for a long time – the case that everyone had their political preferences but electoral outcomes were not going to impact your life that much. As recent history shows, especially in the US, this is perhaps something that we also can’t take for granted anymore. In Africa, when you don't have an expectation that an institution may work properly, getting “your guys” into government is often perceived as critical to your own safety, economic advancement, and access to opportunities.
PRISM: A few interesting things there. When we talk about technology potential, what are the trends that we are seeing? Are there specific areas of development that are notable?
AB: So, there are some pretty broad opportunities. Kenya is probably the most diversified and mature economy in the region. That’s not going to impress you much if you compare it with a place like South Korea, but it would if you compare it with other countries in the region, or if you move into Central Africa, the differences are more apparent. For example, Kenya is quite well connected and it was a pioneer in the “mobile money” sector. I think this creates a bit of an ecosystem for experimentation with e-commerce and payments. Sure, it is more dynamic in urban areas and there may not always be large, scalable structures, but you can pay bills, make transfers, and people can find and buy things online with mobile money. This became even more useful during the pandemic!
Kenya has become a territory for experimentation and has had pitch competitions, hackathons, technology incubators, and all of these kinds of things. These types of events and activities have had varying degrees of success, and I think there wasn’t enough focus on scalability to really make the ideas that came from these successful from a commercial perspective yet. But what it did do was to get people into the practice of working on these topics, experimenting more, and trying to grow ideas. In turn, I think Kenyan people have become more receptive to these ideas, and I think are quite digitally literate here compared to some other places.
Looking ahead, the environment is reasonably well set up now for success. Fiber optic cables most certainly helped connect the country to more reliable internet and improved the technology sector. People now have the expectation that corporations will offer them digital platforms and not ask for things like faxes being sent. The government is also pushing this with efforts to digitize services. It’s not a bad environment now to have an idea and try to build it.
PRISM: Interesting. It sounds like quite a bit is happening. Could you talk a bit more about the brewing economic and fiscal crisis that you mentioned?
AB: So this is a big and complex issue. But since the Uhuru Kenyatta administration entered office in 2013, it has really done two major things. Firstly, they disappointed in terms of returns. They spent a lot on large infrastructure projects, saying that it is important for growth, but then when the projects are actually done, they don’t yield the forecasted returns. It has become clear that a lot of the forecasts were not based on sound analysis and were riddled with ever more extensive corruption, creating some white elephants, or simply investments that taxpayers wildly overpaid for. Secondly, there are large deficits and a lot of debt. Since entering office, the Kenyatta administration has run massive fiscal deficits every year because government revenue projections are never met. Kenya’s debt is also changing in structure, becoming shorter-term and more commercial as Kenya, as a new lower-middle income country, was less eligible for development financing and the government saw development borrowing as coming with too many strings attached. Finally, much of the borrowing is from China – on near commercial terms, but now China is starting to rethink its involvement and strategy in the region to assess if it actually makes sense.
So, we are at a bit of an inflection point now; they need to stop borrowing just to keep the lights on. Kenya is now spending half of its ordinary revenues on debt service: that’s not sustainable. But it is also something that you cannot fix during an election year since no one is going to get serious about fiscal consolidation.
PRISM: Looking more broadly, we often hear about there being so much potential in Africa, that things are finally starting to move, and that there’s a consumer market taking off. There's this sense in a lot of what I read and hear that we are on the verge of something. Do you share that sentiment?
AB: In general, I think these narratives were overblown. I think a lot of this is about narratives, where suddenly after not spending any time covering Africa or seeing it as the “dark continent” with famine and conflict only, media groups turned their attention to the region for a bit and then you ended up with these cute little stories about people using technology in the region or whatever as though it wasn’t happening before. It’s all pretty normal here. People have laptops. It's just normal. It wasn’t new, it was just that no one had bothered to look closer before. I think that the last wave of this type of conversation also aligned with the period of time when the government started doing more euro bonds, and that generated a whole narrative about how great things were going to be. Now, I think we're sort of in a bit of a downturn again.
I am not a fan of these big storylines about Africa, because it really depends on what and where you’re looking. It’s a continent after all; there are many countries, and each is different from the others. For instance, if you've got a really solid risk appetite and the right connections, you can have amazing success in Somalia, but if you are not in those networks and you just want to go into Somalia because you think it would be a nice idea then you’re going to get burned. It really depends on what your own resources and strengths are, and like anywhere in the world, you need to invest in understanding your target market or investment destination.
Another thing that I think was overblown was the idea of a surging middle class in Africa. The African Development Bank’s study of the African middle class from 2011 got quite a bit of pushback. It used a technical, consumption-based definition of the middle class, but what this translated to had little to do with the European or US American idea of a car and Ikea shelves and such things. In fact, what the AfDB categorized as the middle class was still a demographic that was very vulnerable - although I think we’re becoming more aware of such fragility, even if not to the same extent, in the EU and US after COVID. The formal employment sector is very limited in Africa, and if you’re kicked out of that because you lose your job, you also start to fall out of the middle class quite quickly. So I'm not so sure how useful that narrative overall was and is. That said, of course, even low-income people have demand for goods and services, so as an investor, you can service those demographics if you put the work into understanding them.
Finally, it’s worth noting that everybody talks about the demographic dividend in Africa, saying that there are so many young people and that this will be a benefit as it increases the working-age population. But, that often strikes me as a very one-sided discussion in an environment that is so short of employment opportunities. If you have lots of young people with ideas of what life and work might look like and they can’t attain that where they are, that can easily become a source of instability.
I think that this framing of Africa – lumping the entire continent together and not looking at the distinct different pieces – makes it hard to fully understand the continent. If we are planning something in Europe like a project for work or for a holiday, you would look at each different country and maybe do a bit of reading on each to decide what to do. But with Africa, it’s often still all lumped together. The West does this a bit more with Asia, too, I suppose. I really don’t think that it is helpful. I can show you parts of Nairobi that will not look that different from Western middle-class neighborhoods or others that would make a Western middle-class person feel distinctly poor. At the same time, we can then walk a few streets down and have slums.
The New York Times used to make these broad generalizations in their writing, and after a lot of shouting at them online, they finally hired a writer from East Africa to cover East Africa, and you can really see the difference in their coverage. What’s really important is to think about it being a whole continent and a set of countries that have an immense level of complexity.
PRISM: Looking ahead, how do you think that our perception of East Africa and Kenya more specifically will change in the years to come?
AB: I think it depends on who you ask, but in general, there is a lot of ignorance in the rest of the world about Africa. I don’t think that’s surprising; we tend to be ignorant about the parts of the world that don’t impact us. But this really comes out in the form of the whole idea of there being “white-savior syndrome” and the conceptualizations of Africa that are informed by that.
But I think technology will be a big driver of change in perceptions. For instance, I've been watching a lot of Korean content recently. Streaming services effectively let you drop into a whole other part of the world. It’s not news, but it is pop culture: seeing what life is like, how people dress, et cetera. So, we are seeing what the rest of the world is like, but increasingly the world will see more of what Africa is like. Netflix is investing more here. Hollywood is investing more here. I think that a lot is still confined to Nigeria and global African audiences, but I think that’s probably changing.
PRISM: Going back to the China issue, what is the change that we're seeing now compared to recent history?
AB: So firstly I have to say that I'm not a China specialist. I'm mostly looking at this from the perspective of what China is doing in Kenya and a few other African countries. But in general, there is more hesitancy now than before. At their last big Africa meeting, the Forum on China-Africa Cooperation, the Chinese government announced that they were going to roll back their financing of infrastructure, which has been the hallmark of Chinese involvement in the region for years. I think China is going through a bit of a learning curve here, too: They are realizing that sometimes they can get played, that they don’t always get the returns they had anticipated, that public perceptions do matter, and that they don’t particularly like the accusations of creating debt traps.
That, of course, is also not an easy issue: I actually find this to be a bit of an iffy argument because the governments in Africa did negotiate these deals and they don’t have to sign deals for projects where they’re being taken advantage of. They are sovereign governments with capable technocrats, so why go along with something they know they shouldn’t? With China’s signal that they are going to focus less on infrastructure, the focus will now shift more to trade, which is great if Africa can export more to China and create new markets. I also hope that this will have a bit more of a democratic impact on development since the gains are more widespread and not just tied to a handful of operators with the right political connections. To make this shift successful though there are still several challenges to overcome, with a key one being non-tariff barriers to trade on the continent; it is the lack of infrastructure that limits trade more so than the actual tariffs, which, ironically, brings us back to China still being the main infrastructure financier.
PRISM: Putting this all together, it sounds to me that you are a bit more skeptical about the future of Africa compared to some of the other conversations that we have had with other regional specialists. Does that seem right to you?
AB: Yes, I think that’s right. There are clearly institutional issues here and that’s what worries me quite a lot at the moment. Rich people are well positioned to take advantage of the possibilities in Africa while there is an immense degree of vulnerability in the broader population. As I mentioned earlier, COVID-19, in particular, has reminded us that this also applies to not insignificant parts of the population e.g. in the US, but I do mostly focus on Africa.
The fact that this is true makes it very difficult to create policies that provide a baseline of security for people and allows them to be put into a headspace where they can productively think about where they want their lives to go and how they can work to realize this. Weak institutions are a huge problem, and with the existing corruption, it just basically means that there is no capacity to build a sufficient safety net that will allow people to survive without a constant sense of vulnerability.
PRISM: Thank you for sharing so much with us!