As second or third generations take over the reins of family businesses, they may be more open to outside investment to grow their companies. East Africa in particular has a rich seam of such businesses, which canny private-equity investors should be exploring.
In conversation with David Ndii, Kenyan economist
In the second in our series of candid interviews, The Africa Report sits down with the Kenyan oppositionist and economist David Ndii to talk about the "cargo cult" of infrastructure, and why farmers are the future.
Face-to-face, David Ndii is affable, solicitous: the piano in the front room is the domain of his daughter, and the excellent black coffee he hands over is brewed by his own hand. But outside his home, Ndii is a waspish public intellectual. His relentless critical barbs in the Nation Media Group newspapers eventually led to his column being axed in August last year. He is also the chief strategist for the opposition National Super Alliance (NASA) – and famous for his tirades about the economic blunders of Kenya’s rulers.
We are sitting on his back veranda at his house in Gigiri, an upmarket suburb of the Kenyan capital Nairobi. With its tall drawn-up grey slate roof and grey stones, there is a touch of the gothic about the buildings. Palm trees hug close. Voltaire wrote in Candide about tending your own garden, but that seems a bit onerous for Ndii. “We only do the minimum,” he laughs. “I grew up on a farm, so it’s not that I don’t know how. But it’s a chore.” There are a few vegetables, some bananas – the Ndii smallholding is marginal.
But it allows us to stumble onto his favourite topic: the importance of farmers. “People forget that in many countries, over 80% of people on the continent are semi-subsistence farmers, with very low productivity.” That is where public money is best spent, he argues. And that is why the manifesto he helped to write for NASA majored on boosting smallholder yields.
Rather than deal with the specificities of their countries, elites prefer to import ideas
There are precedents for this. The US in the 1840s spent massively on agricultural colleges and subsidies; post-World War II Japan did a similar thing; and India had its green revolution. “That is what is still keeping Kenya going. We did that a lot in the 1960s and 1970s. Apart from raising smallholder productivity back then, Kenya has not done anything else of economic significance,” says Ndii.
While Kenya has been good at building institutions to export fruit, vegetables and flowers, in recent years, Ndii says that the country and continent have lost their way by importing developmental ideas from abroad.
In recent decades, rather than focus on dragging agriculture into the 21st century, Kenya has been spending massively on infrastructure. “I call them cargo cults!,” says Ndii. Dear reader: You are not alone in needing the Wikipedia reference of ‘cargo cult’, which refers to the beliefs “which began among Melanesians in the late 19th and early 20th centuries that various ritualistic acts such as the building of an airplane runway will result in the appearance of material wealth, particularly highly desirable Western goods (i.e., ‘cargo’), via Western airplanes.”
And the risk is that such projects will not be sustainable if they are not generating economic benefits. “Government borrowed a lot of money that it shouldn’t have,” says Ndii about the $3.2bn single-gauge railway Kenya has built. “But at least it built a railway. It also borrowed a lot of money from the markets, and it is doing nothing with it. Take the debut eurobond of $2.8bn: $600m went to pay off a loan, $2.2bn disappeared without trace.”
But it is not just Kenya in this sort of situation. Ethiopia’s debt, too, has caught up with it, explains Ndii, after a two-decade sprint to build dams, trams and trains. He puts it down to a lack of vision from elites, who rather than deal with the specificities of development in their countries have preferred to import ideas from abroad – in Ethiopia’s case, an Asian-style state-driven push for manufacturing.
And that, he argues, has failed, wracking up debts that meant that receiving the job as premier was “a hospital pass for the new guy”, Abiy Ahmed. The facts bear Ndii out. Abiy recently said: “Our economy will face danger [. . .] if we don’t take corrective measures on [debt],” adding that Ethiopia had rescheduled 60% of its loan repayments over 30 years, up from 10.
Where are these people going, if we don’t have those sweatshops?
And Ndii is not so sure that the labour-intensive manufacturing future that South Korean enthusiasts predict for Africa will happen. “African labour forces have actually tripled in the last two and a half decades. There is no other part of the world that has grown its labour force at that kind of rate. Yet it has been able to absorb most of these people, otherwise you would be having revolutions all over the place. So the question is where are these people going, if we don’t have those sweatshops?”
His point is that African politicians do not want to know. “They don’t ask where are these people going, and what can the state do to improve their lives,” Ndii says.
For Ndii, there are much bigger forces at work than just bad decision-making from African leaders. His belief is that large chunks of capital are desperately seeking returns after a decade of quantitative easing in the West after the financial crisis of 2008.
Big investors from both East and West are looking for projects that will absorb a maximum amount of finance. A large railway project or a dam, for example, are far easier to invest in than 200 million farmers. And Ndii argues that Africa will continue to suffer these white-elephant projects until it starts to focus on its political development.
It is a subtle argument – Ndii is not against using the power of the state to drive progress. The problem is about putting the cart before the horse, the economics before the politics. Until that political consolidation is complete – for example, in Kenya, until the conflict between the Kikuyu and Luo is resolved – attempts at economic development will face tough headwinds.
“Once it runs into distributional issues, anything you try to do will explode politically,” says Ndii. “So unless you create viable polities, economic transformation is very stressful – those South East Asian countries were exceptions.”
And any societal shock-absorbers African countries may have are being fast eroded by the “triple threat” of demography, climate change and “this debt that we have sleepwalked into,” says Ndii.
His optimism about the ability of Kenya’s own political consolidation is mixed. He had opposed “the handshake” between the principal opposition leader in Kenya – NASA’s Raila Odinga – and President Uhuru Kenyatta, which took the heat out of the post-electoral moment. As the anniversary of that handshake approaches, the tirades may yet return.
Read last month’s ‘In Conversation’ with Bob Collymore here.