Technology, the bad governance solution (or: why Nigerians love their smartphones)

Nigeria recently announced a statistical revision that at a stroke nearly doubled the size of the country’s economy. The International Monetary Fund, after careful review, endorsed the revised estimate as accurate. That said, there was some statistical trickery involved. Nigeria had failed to update the base year for its GDP estimates since 1990, which had the effect of making entire sectors of the Nigerian economy disappear from official statistics. This may have been an oversight, but probably wasn’t. For countries soliciting foreign aid, appearing to be very poor is useful. By contrast, for countries soliciting foreign investment, appearing to be rich is useful. And indeed, shortly after the revision, Nigeria raised $1 billion in a sovereign bond issuance, despite a Standard & Poor’s rating downgrade. Indeed, the bond issue was oversubscribed, as investors rushed into what is now (following the revision) Africa’s largest economy. The understatement of Nigerian wealth is one reason that the big international telecoms companies decided not to bid when Nigerian mobile phone licenses were put up for auction in 2001. As a happy result, Africa has some thriving mobile telecoms companies and entrepreneurs, notably South Africa’s MTN and the Sudanese telecoms billionaire Mo Ibrahim. Actually, the understatement of Nigerian wealth is only part of the reason for this strategic miscalculation. What international telecommunications companies also did not understand is just how badly Nigerians wanted mobile phones. Consider the following graph, taken from the Upstream/YouGov 2013 Emerging Market Mobile Attitudes Report: Strikingly, an overwhelming majority of Nigerian respondents envisioned using smartphones for activities beyond talking and texting. Even more strikingly, the top choice of content that Nigerian...

Why a federal Ukraine is a worst-case scenario

Ahead of US-EU-Russia talks on the future of Ukraine on Thursday, pro-Russian protesters – possibly assisted by Russian special forces – have escalated their disruptions in Eastern Ukraine beyond Crimea. While media coverage is understandably alarmist, these disruptions are not necessarily worrying signs. Ahead of negotiations there is always a rush by the negotiating parties to establish facts on the ground to support their positions. This is why Israel inevitably pushes forward with building settlements just ahead of negotiations with Palestine; is why both sides in Sudan’s conflict ramp up hostilities each time peace talks are scheduled. It does not mean the talks are falling apart before they have started. It’s just good strategy. The fact on the ground that Russian President Vladimir Putin hopes to establish prior to talks is the destabilization of more of Eastern Ukraine. This way he will have something to give up, in exchange for what he wants: a federal Ukraine. This is what Russia has been proposing as an acceptable compromise for Ukraine even before it invaded and annexed Crimea. Is also very worrying, as a federal solution is a worst-case scenario for Ukraine. Some may feel that it is a small price to pay in exchange for peace. Russia, the EU, and the US can play their games of influence in a federal Ukraine, jockeying for the sympathies of individual provinces, rather than playing the higher-stakes games of sanctions and energy threats, which have the potential to disrupt the fragile recoveries now emerging in the EU and underway in the US. The problem with the federal solution is that it undermines the...

The Eurozone’s (and Japan’s) deflation problem

I tend to be bullish on Europe – partly as a corrective to the mass of commentators who too early wrote off the crisis in the Eurozone as irresolvable. This optimism has been justified by the recent run-up in European equities, with developed European countries (Germany, Ireland, Finland…) constituting four of the five best-performing stock markets of 2013, when measured in US dollar terms. That said, a spectre is now haunting Europe – the spectre of deflation. The problem with deflation is that it makes the value of savings grow, which encourages people to spend less. If prices are falling, a penny saved is more than a penny earned, because, if you do not buy that TV set (for instance), not only will you have saved your penny, but the TV set will be cheaper in a few months, so you are actually getting a return on your patience. Hence deflation encourages people to save, which reduces demand. The TV shops in response reduce the prices of TVs even further, in an effort to get you to buy. Which implies yet more deflation. A few rounds of this, and you have the dreaded “deflationary spiral”, producing not only deflation but a serious contraction in consumer spending and hence real economic activity. Scenarios run by Oxford Economics on the potential impact of sustained deflation in the Eurozone are not pretty, suggesting the economic bloc would be pushed back into recession. In response to such concerns, Germany’s Bundesbank has recently softened its opposition to quantitative easing, suggesting that radical measures to combat the threat of deflation may be forthcoming. This announcement has widely...