Ethiopia’s Nile mega-dam is changing dynamics in Horn of Africa

China, US, Turkey and Saudi Arabia vie for influence amid region’s renaissance

David Pilling

Ingram Pinn illustration of David Pilling’s column ‘Ethiopia’s Nile mega-dam is changing dynamics in Horn of Africa’
© Ingram Pinn/Financial Times


In a few weeks, Ethiopian engineers will start the multiyear task of filling with water the Grand Ethiopian Renaissance Dam, Africa’s largest hydroelectric power plant and the most ambitious attempt to harness the power of the Nile in history.

Eventually, the $4.8bn project will double Ethiopia’s generating capacity and provide a jolt of electricity that could energise what is already the most dynamic large economy in sub-Saharan Africa.

The dam has not only raised tensions with Egypt, which fears losing control over a waterway that has shaped its destiny for millennia. It has also put the spotlight on a region, the Horn of Africa, that has become a magnet for outside attention, not to say interference, from a plethora of powers including the Gulf states, Saudi Arabia, China, Turkey and the US.

They have brought billions of dollars in investment in ports, airports, rail, agriculture and education. But, as so often before, they have also projected their own rivalries on to a region with plenty of its own divisions.

At the core of the Horn is Ethiopia, whose population of 110m dominates a region that includes, in its narrow definition, the far less populous countries of Djibouti, Eritrea and Somalia, plus the self-declared independent entity of Somaliland. Ethiopia, a Christian state since the fourth century, resisted European imperialism, making the Horn what Christopher Clapham of Cambridge university calls the only “non-colonial” region of Africa.

Instead, Ethiopians from the highlands over centuries drew their own borders through imperial conquest, incorporating swaths of territory and sowing resentments that fester to this day. Just this month, the government sent troops on to the streets and shut down the internet in response to ethnically charged tensions.

Ethiopia had what Murithi Mutiga of the Crisis Group calls “a bad 20th century”. Its decline culminated in the Red Terror perpetrated by the Marxist Derg regime, which overthrew Emperor Haile Selassie in 1974, and the famines of the mid-1980s, which made proud Ethiopia a symbol of the failed African state.

Yet since 1991, when the Derg was overthrown by a revolutionary army, Ethiopia’s fortunes have been revived. For the past 20 years, its economy has grown annually at close to 10 per cent. This has transformed what had been one of the world’s poorest states into a country with a fighting chance of reaching middle-income status by 2025, despite its own deep political instability.

The mega-dam on the Blue Nile, financed by patriotic bonds, is a potent symbol of Ethiopia’s renaissance.

Still, for all its potential, neither Ethiopia, nor the Horn in general, has been a story of steady progress. Far from it. Ethiopia’s liberation from the Derg was swiftly followed by the loss of its coastline after the secession of Eritrea two years later.

In 1991, Somalia, a country of mainly nomadic pastoralists resistant to the concept of a centrally controlled nation state, plunged into decades of bloody anarchy after the collapse of the Siad Barre dictatorship, which had been supported first by the Soviets and later by the Americans.

Foreign powers have always been drawn to the Horn because of its proximity to the Red Sea, which controls access to the Suez Canal. In recent years, Gulf states have revived their centuries-old connections. China has invested heavily, pouring billions into Ethiopia in spite of its lack of physical resources, and establishing a military base in neighbouring Djibouti. Beijing also financed and built a semi-functional railway between Djibouti and Addis Ababa, helping strengthen Ethiopia’s link to the sea following its loss of Eritrea.

Yet political actors in the Horn have never been passive victims of external interference.

Instead, they have sought to profit from foreign interest by pitting one external actor against another.

The commercial hub of Djibouti, formerly French Somaliland, is a case in point. Situated on the Bab el-Mandeb Strait, a chokepoint separating the Gulf of Aden from the Red Sea, it now hosts the military bases (for a price) of the US, China, Japan, France and Italy. In 2006, Dubai-based DP World constructed a container port in Djibouti only to have it seized in 2018.

Meanwhile, along the African Red Sea coast there has been a scramble for coastline with Turkey, the United Arab Emirates, Qatar and Ethiopia itself taking stakes in competing ports.

As if all these shifting allegiances were not enough, Ethiopia has undergone a political earthquake. In 2018, after years of unrest, Abiy Ahmed became prime minister, promising democracy, a more open economy and peace with Eritrea.

Since then, the US has seen a chance to prise Addis Ababa away from what it regards as China’s malignant influence. It has held out the prospect of big investments if the government goes through with market reforms.

Under pressure from Saudi Arabia and Egypt, Washington is also urging Ethiopia to sign a water-sharing agreement to allay Cairo’s fears over the Nile.

Mr Abiy has a restive, fractured state to contend with. Soon he will need to fight a difficult election that was postponed because of Covid-19. The last thing Ethiopia’s leader wants is to appear weak in the face of external pressure.

The Grand Ethiopian Renaissance Dam will be filled, water-sharing agreement or not.

In the Horn of Africa, outside interference only gets you so far.

sábado, julio 25, 2020

ALL SUMMER IN A DAY / MAULDIN ECONOMICS

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All Summer in a Day

Jared Dillian


I have always been an avid music collector. I had a collection of about 700 CDs, and a few hundred cassette tapes, before everything went digital in 2008.

I had these giant CD racks in my house. Everything was in alphabetical order.

I was always in search of good record stores. Most of the time, I had to make do with the Record Town in the mall. But whenever I found my way to a big city, I would go to Tower Records, like the one on South Street in Philadelphia.

In 1998, I was living in the San Francisco Bay Area, and there was a Virgin Megastore downtown, but I didn’t get there much. I had just heard that you could order CDs on this thing called Amazon (AMZN).

I tried it, and it worked! Game changer.

Amazon was great for books and CDs because of this thing called the “long tail.” Since they didn’t have shelf space, they could carry hundreds of thousands of titles. And of course, I was ordering super obscure stuff.

I ordered so many CDs off of Amazon in the first year that they gave me a gift—a coffee mug.

Virtually all of my disposable income was going toward CDs on Amazon.

Here is the key point. I remember saying to myself at the time—this is the greatest company in the world.

Now, if at that point you’d told me that Amazon would have a $1.5 trillion valuation, and Jeff Bezos would become the richest man in the world, I would have believed you.

I still didn’t buy the stock.





Why didn’t I buy the stock? Because it had already run up about 400%, and I thought I was too late. I missed the whole thing.

I also had a nagging feeling that this tech stock mania was getting out of hand, and I was right—if I had bought the stock, I would have had a nasty correction during the dot-com bust.

But think about this—if I had just bought the stock and held on for life, it would have been the trade of a lifetime.

Forever

What should your holding period on stocks be?

Ideally, forever.

I say this all the time on The Jared Dillian Show—the people I know who have done the best investing are people who paid for help, paid high commissions to buy a portfolio of about 20 stocks, and held onto them forever.

One or two of those stocks go to zero, most of them go nowhere, but a handful go to the moon. This is what most portfolios look like, unless you are dealing with sketchy microcap stocks.

I have always been a long-term thinker, but not a long-term investor. Which is a shame. At heart, I am still a trader from my Lehman days. I like to take profits.

You’ve probably heard this old anecdote—the brokerage accounts that do the best are the ones where the account holder dies and everyone forgets about the account. You don’t sell stuff, and it goes up over time.

Think about this—I had the vision to see that Amazon was going to be a massive company far off in the future, and I did nothing.

I avoided the correction, but I didn’t have the intestinal fortitude to buy it in 2002, either. Because that is the nature of bear markets—you’re paralyzed with fear. At the time, I was worried about getting laid off; I wasn’t worried about buying Amazon.

Unshakeable

There are a few times in your investing career when you get the highest level of conviction on a stock. Your belief is unshakeable. And it has to be because at some point, you will be tested.

Say you were a believer in Netflix (NFLX):




You’ve had some breathtaking drawdowns over the years.

The only people I know with more conviction than NFLX investors are bitcoin investors. I should know, because I am one of them. When people ask me about risk management in bitcoin, I just tell them, “Stop at zero, limit at 100,000.”

But implicit in having an unshakeable belief in a stock is the belief that “things” will continue to get better over time. I asked this question recently on Twitter:




In the short run, I think things will get worse. But over any 20-year period of human history since industrialization, things have gotten better.

Unless we truly go back to the Dark Ages, things will get better, and stocks will probably go higher.

Though I am known for saying that stocks might not go higher. Because the conditions that were present for the last 100 years of stock market performance might not be present for the next 100 years.

I don’t even agree with the statement that stocks are the best way to save for your retirement. They aren’t. I believe that a mix of asset classes is the best way, like we have in The Awesome Portfolio.

But if you own stocks, you have to stop thinking like a trader and start thinking like a dead person, which is to say—don’t check your brokerage account more than once per year.

The tech cold war is hotting up

TikTok and the Sino-American tech Split

The tech industry is dividing




Over the past few years countless predictions have been made that the global technology industry will suffer a painful rupture because of tensions between America and China. Real damage has been surprisingly hard to spot.

Last year Apple made over $100m of sales a day in China, while Huawei reported record revenues despite America’s campaign to cripple it.

Investors have piled into tech companies’ shares, buoyed by the prospect of new technologies such as 5g and a pandemic that is forcing billions of customers to spend more time and money online. Judged by sales, profits and shareholder returns, it has been a golden era for American and Chinese tech.

The industry now has a colossal market capitalisation of $20trn and accounts for a quarter of the world’s stockmarket value.

Yet if you examine the events of the past two weeks you can sense the split that is about to come. On July 6th Mike Pompeo, America’s secretary of state, said that the administration was considering banning TikTok, a Chinese-run app that is wildly popular in the West.

This followed India’s decision a week earlier to prohibit it, and 58 other Chinese apps, after lethal brawls between soldiers in the Himalayas. Britain and France are considering sidelining Huawei from their 5g networks.

Between July 6th and 7th Facebook, Google, Microsoft and Twitter all said that they will stop co-operating with Hong Kong’s authorities for the time being, because of the introduction of China’s brutal security law there.

And smic, China’s aspiring semiconductor champion, has just said that it will raise $7bn in a state-supported listing in Shanghai—it delisted from New York last year. The proceeds will be used to supersize China’s home-grown chipmaking capacity.

The split is happening at two velocities. The American and Chinese software and internet universes are heading at light-speed towards total separation. They were never particularly connected—American software firms made just 3% of their sales in China last year, and China has long kept its internet users isolated from the world. The bill for shutting up shop and finding substitute products is usually low.

TikTok creates few jobs and pays little or no tax in America or India, so the main cost of banning it is sullen teenagers. Likewise, Facebook and the other firms taking a stand in Hong Kong do little or no business in China.

Two important exceptions have been Microsoft’s office software and, especially, Google’s system of apps like gmail and Maps, found on Chinese-made phones sold worldwide. America’s blacklisting of Huawei has cut off the world’s second-biggest phone seller from some of the world’s most popular apps.

Chinese handset firms are racing to develop an alternative. The American and Chinese software worlds are thus quickly becoming entirely separate universes.

Hardware is moving much more slowly. That is because it is more globally integrated and involves $1trn of physical plant and $400bn of inventories. Later this year Apple will launch a new 5g handset that will still rely on the same vast manufacturing cluster in China that it used five years ago. Even so, the techtonic plates are shifting.

Because of a new set of American restrictions on the use of chipmaking tools put in place in May, Huawei may run out of stock of its specialist chips in early 2021 and will have to scramble to find an alternative. That will be cumbersome and costly.

The smic capital-raising shows that China intends to create a chip giant on a par with Intel or Taiwan’s TSMC, although it will take years to do so. If Britain and France both eventually ditch Huawei, they will shift to using Nokia and Ericsson in their networks, which will be expensive and take several years.

If the splintering now seems inevitable, there will be some surprises. One is how the two technospheres of influence are drawn. American policymakers tend to assume the world will use Silicon Valley products, but plenty of countries may ally with China’s tech system or hedge their bets.

India is frosty towards both American and Chinese digital firms and hopes to build up its own champions, although it cannot compete yet in hardware. Another surprise is how much the split could cost. The global listed hardware industry has annual expenses of $600bn, much of which may need to be replicated.

Plenty of key firms, including Apple and tsmc, are equally dependent on America and China and have no clear plan to cope with a deeper divide.

The tech split is under way. Do not assume it will happen safely.


Sovereign Creditors Must Not Rewrite the Rules During the Pandemic

If Argentina acceded to the demands of a group of hold-out creditors, it would create a disastrous precedent that would set back by more than a decade the development of the international legal architecture for sovereign debt. More than 70 economists and scholars urge the international community to reject such irresponsible behavior.

Joseph E. Stiglitz, Robert Howse, Anne-Marie Slaughter

stiglitz275_Matías BagliettoNurPhoto via Getty Images_argentinabankcoronavirus


NEW YORK – In the wake of COVID-19, there is an urgent need for sovereign debt restructuring, including debt relief. In the circumstances caused by the pandemic, many countries’ repayment obligations could have devastating social consequences if they are not adjusted. Financial markets face risks of sovereign default.

While some ad hoc relief has already been promised by official creditors, indebted poor countries are again facing private creditors without a sovereign-debt restructuring mechanism – the global equivalent of a bankruptcy regime. In the absence of such a framework, called for by the United Nations General Assembly and advocated by many experts and stakeholders, there have nevertheless been some constructive innovations in contractual approaches to sovereign debt. These address at least some of the collective-action problems of restructuring, including opportunistic hold-out behavior.

The most promising measure is a collective action clause (CAC) that allows a restructuring to go forward where approved by a supermajority of the aggregate of creditors. This progress reflects the understandable reaction to litigation by “vulture funds” against Argentina in New York, which threatened an already viable restructuring supported by the majority of the nation’s creditors.

In the ongoing debt negotiations between Argentina and private creditors, one creditor group has proposed moving backward, and is pressuring Argentina to remove this innovative feature in the future. This would be a disastrous precedent that would set back by more than a decade the development of the international legal architecture for sovereign debt. It also has implications for many debtor countries and stability and certainty in international debt markets.

We strongly believe that the international community should press these creditors to withdraw the demand and support Argentina in rejecting it. The creditors’ proposal is to replace enhanced CACs that prevent, or at least discourage, such opportunism with older arrangements that could lead to the vulture-fund predation that an increasing number of countries have faced in the last two decades, where the holdout in question used the US federal court in New York to extort full payment, throwing into potential chaos a restructuring agreement that applied to the majority of creditors.

It is imperative that the international community supports the rejection of such a fateful step backward. In the wake of the New York litigation, the US Treasury, the International Monetary Fund, and other stakeholders developed the new CAC standard allowing a debt restructuring to proceed for all series of bonds if an aggregate supermajority of bondholders across the various series approves.

Without such an aggregation arrangement, a holdout or holdouts could buy a dominating portion of a single series, and then block the restructuring. As the IMF and other international stakeholders have appreciated, even so-called dual-limb CACs, which already existed in a few countries’ sovereign-bond contracts, would not prevent a vulture fund from holding out.

After all, dual-limb CACs still involved a supermajority of an individual bond series, as well as an aggregate supermajority across all series, if that individual series was to be included in the restructuring. Argentina’s newer sovereign-bond obligations include state-of-the-art CACs that obviate this difficulty – and that have spurred the creditors’ opposition.

This new standard for CACs, developed through a US Treasury working group, was supported by IMF staff work with stakeholders. It was then favorably evaluated by the IMF directors in 2014, has become best practice under the International Capital Markets Association, and has been endorsed by the G20 as an indispensable element of the international financial architecture for sovereign debt. Europe has adopted it for all its sovereign debt from 2022 onwards.

Whether even these practices, and related contractual innovations, can solve the collective action problems of sovereign-debt restructuring without a true international bankruptcy court or multilateral mechanism remains a subject for debate.

What is undeniable, however, is that the proposed move backward will exacerbate the collective-action problems in sovereign-debt workouts, increase political and ideological tensions over sovereign debt, and make pragmatic and viable solutions to sovereign insolvency much more elusive.

Who really benefits? In the long run, not the majority of creditors, who have an interest in timely and orderly restructuring arrangements that can reconcile their risk exposure with emerging-market realities. Responsible creditors should not want inter-creditor fights to hold up a badly needed restructuring, which only benefits the most irresponsible creditors at the expense of everyone else.

The beneficiaries obviously include the vulture funds. But, perhaps above all, they are the white-shoe law firms and prestigious investment banks that advise on these matters, and whose fees only increase with the complexity and transaction-cost intensity of sovereign-debt restructuring.

This isn’t about struggling to find economic terms for restructured debt that are sustainable for debtors and fair to creditors. The creditors willingly signed on to these contractual terms in 2016. Now that they have discovered in practice the strength and flexibility of the new CAC, they are upset that Argentina is using the clause deftly to preempt holdout behavior, exercising against non-cooperative creditors its contractual rights to the fullest extent. It is absurd and hypocritical for these creditors, including hedge funds, to attack a sovereign debtor for using hard-won contractual terms as an effective bargaining tool.

The creditors have already persuaded legislatures to allow them to buy a bond for pennies on the dollar and then sue to collect the full dollar (technically known as the Champerty clause), and pushed back New York Governor Andrew Cuomo’s effort to void the usurious 9% interest rate charged on pre-judgment interest, which provides the creditors an incentive not to negotiate in good faith. What vulture funds and aggressive litigators want is to return to a world in which they use and abuse the courts to enrich themselves at the expense of developing countries, while undermining responsible players in international financial markets.

If anyone had any doubt about the creditors negotiating in good faith, these proposals may have settled matters. Particularly disappointing is that among the creditors in the groups demanding these terms are some who present themselves as models of corporate responsibility.

Ultimately, this episode shows that the problem of negotiating socially and economically sustainable sovereign-debt workouts may simply not be solvable without moving to a global restructuring regime. In the meantime, however, under the ever-present shadow of the current global crisis, it is critical to move forward with such limited solutions as exist.

We urge Argentina and its creditors to use the restructuring, and the debt exchanges it will involve, as an opportunity to place all sovereign obligations to private creditors (including those from the earlier period) under the new CAC regime. This framework has rightly won the support of all responsible stakeholders – even those who seek a more comprehensive long-term solution.


This commentary is co-signed by John B. Taylor, former US Under Secretary of Treasury for International Affairs, Stanford University; Barry Eichengreen, University of California Berkeley; Thomas Piketty, School for Advanced Studies in the Social Sciences; Brad Setser, Council on Foreign Relations; François Bourguignon, former World Bank Chief Economist, Paris School of Economics; Margot Salomon, London School of Economics; Rohinton P. Medhora, Centre for International Governance Innovation; Nelson Barbosa, Getulio Vargas Foundation, former Minister of Finance and Planning, Brazil; Robert Johnson, President of the Institute for New Economic Thinking; George Katrougalos, Demokritos University of Thrace, former Foreign Minister, Greece; Yu Yongding, former member of the Monetary Policy Committee, China; Katharina Pistor, Columbia Law School; Amar Bhattacharya, Brookings Institution; Annamaria Viterbo, University of Turin; Odette Lienau, Cornell Law School; Jean-Paul Fitoussi, SciencesPo; William H. Janeway, University of Cambridge; Carlos Espósito, Autonomous University of Madrid; Michael Waibel, University of Vienna; Andreas Antoniades, University of Sussex; Richard Kozul-Wright, UNCTAD; Frances Stewart, University of Oxford; Matthias Goldmann, Max Planck Institute for Comparative Public Law and International Law; David Vines, University of Oxford; Servaas Storm, Delft University of Technology; Paul Collier, Oxford University; Carlos Ominami, former Economy Minister, Chile; Valpy FitzGerald, University of Oxford; Ann Pettifor, Policy Research in Macroeconomics; Jayati Ghosh, Jawaharlal Nehru University; Pronab Sen, former Principal Economic Adviser, India; Oliver D. Hart, Harvard University; Yılmaz Akyüz, former Director, UNCTAD; Anne-Laure Delatte, CNRS (Dauphine Leda); Prabhat Patnaik, Jawaharlal Nehru University, India; Stephany Griffith-Jones, Columbia University; Gerald Epstein, University of Massachusetts Amherst; Ricardo Ffrench-Davis, University of Chile; Marcus Miller, University of Warwick; Giovanni Cornia, University of Florence; Patrick Bolton, Columbia University; Pierre-Olivier Gourinchas, University of California Berkeley; Jürgen Kaiser, Jubilee Germany; Guillaume Vallet, University Grenoble Alpes; Ulrich Volz, University of London; Silvia Marchesi, University of Milano Bicocca; Himanshu, Jawaharlal Nehru University; Dania Thomas, University of Glasgow; Bruce Chapman, Australian National University; Dean Baker, Center for Economic and Policy Research; Danny Quah, National University of Singapore; Arjun Jayadev, Azim Premji University; Neva Goodwin, Boston University; Robert Pollin, University of Massachusetts Amherst; Juan Carlos Moreno-Brid, National University of Mexico; Sunanda Sen, Jawaharlal Nehru University; Kunibert Raffer, University of Vienna; Sayantan Ghosal, University of Glasgow; László Andor, Université Libre de Bruxelles; Barry Herman, The New School for Public Engagement; Paul Pfleiderer, Stanford Graduate School of Business; Léonce Ndikumana, University of Massachusetts Amherst; Diane Elson, University of Essex; Rohit Azad, Jawaharlal Nehru University; Kishore Mahbubani, National University of Singapore; Anat R. Admati, Stanford Graduate School of Business; Ashoka Mody, Princeton University; and John Weeks, SOAS University of London.



Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is Chief Economist at the Roosevelt Institute and a former senior vice president and chief economist of the World Bank. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

Robert Howse is a professor at New York University School of Law.

Anne-Marie Slaughter, a former director of policy planning in the US State Department (2009-2011), is CEO of the think tank New America, Professor Emerita of Politics and International Affairs at Princeton University, and the author of Unfinished Business: Women Men Work Family.