Transcript: Protests push Kenya to abandon tax rises

This is an audio transcript of the FT News Briefing podcast episode: ‘Protests push Kenya to abandon tax rises’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, June 27th, and this is your FT News Briefing.

[MUSIC PLAYING]

JPMorgan wants investors to start paying closer attention to India. And violence in Kenya forced the president to reverse course on a controversial tax bill. Plus, the US is thinking about lifting sanctions to get access to critical minerals in Africa.

Harry Dempsey
Unless the US is more pragmatic, it’s not going to be able to compete with China to secure the natural resources that are gonna underpin the technologies of the future.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

[MUSIC PLAYING]

JPMorgan is going to add India’s sovereign debt to its emerging markets index tomorrow. This is the first time Indian bonds have been included in a major benchmark, and it means the country’s got a whole bunch of foreign money coming its way. Investors saw this move coming, and they’ve already bought about $11bn worth of India’s bonds. Another 30bn is expected to enter the market over the next few months. And all this seems like good news, but a bunch of money moving into the bond market this quickly could make it tough for India’s central bank to control market volatility.

[MUSIC PLAYING]

Kenya’s President William Ruto decided yesterday that he will not sign a deeply unpopular bill that would have raised taxes. Demonstrators stormed parliament on Tuesday to protest it.

[AUDIO CLIP OF PROTESTS IN KENYA]

Ruto addressed the nation on Wednesday saying that he’s going to drop the legislation.

William Ruto voice clip
I run a government, but I also lead people. And the people have spoken.

Marc Filippino
Here to explain why Ruto backtracked is the FT’s Africa editor, David Pilling. Hey David.

David Pilling
I’m Marc.

Marc Filippino
So before we get into the legislation itself and Ruto’s, you know, 180, what have things been like in Kenya the past few days? Just how bad has it gotten?

David Pilling
They’ve got pretty bad. There have been demonstrations, which have got increasingly violent on the streets of Nairobi in particular. Parliament was stormed. There’ve been cars set alight. The police have been shooting back. Some 22 people at least have been killed. There have been reports that some of the leaders of the demonstrations have been abducted. So from both sides, there’s certainly been a high level of violence and anger. And as you say, there’s been a dramatic turnaround because only on Tuesday night, Ruto had gone on television calling these people treasonous. Now he’s gone on television saying that he must listen to the people. He would junk the bill. So you can see this has really been, as you say, a 180-degree turn, a very dramatic situation.

Marc Filippino
That’s some serious whiplash there. What made this finance bill so deeply unpopular?

David Pilling
Well, the background is an economy that, while it’s doing relatively well by the standards of some African economies, but still it’s facing the aftermath of Covid. There are high interest rates abroad, and so money isn’t flowing into Kenya. And the final straw came when, in addition to all of this, the government said, now we’re going to tax you more, we’re going to tax you on diapers, we’re going to tax you on food, we’re going to tax you on all these kind of essential goods and services when people are already really struggling.

Marc Filippino
But I gotta imagine that the people who created and pushed this bill knew that it was going to be unpopular, but still did it anyway, showing how much they need these tax dollars. I mean, what does not pushing this legislation through mean for state coffers?

David Pilling
Well, this year Kenya had a deficit to GDP of 5.7 per cent. The aim was to bring this down in line with an agreement that Kenya had made with the IMF, about 38 per cent of the revenue that the government collects goes to debt-servicing. In the last several years, Kenya’s borrowed huge amounts of money — from the IMF, then from China — to build all sorts of infrastructure. You can see a lot of that infrastructure in Kenya, some of it very successful, some of it much less so. What you can’t see is the debts that now have to be repaid. And of course, if he fails to do that and if the sums don’t add up, then they’re in trouble with the IMF and with other multilateral institutions that have lent Kenya money.

Marc Filippino
Yeah. So now that this legislation has been pulled, David, it looks like the government is not going to get the revenue from the tax rises that it was banking on. What does that mean for the country’s economy more broadly?

David Pilling
Well, Ruto has gone from saying they’ll bring in this tax bill to now saying that the emphasis must be on austerity. Quite cleverly, I think he’s talked about austerity within his own administration — less cars, lower travel budgets, less bureaucracy, et cetera. But in reality, I think in addition to any savings he’s able to get from there, there is also going to be cuts to public services that people are going to feel in their access to water, their access to education, their access to healthcare. So on the one hand, you had raising taxes and keeping services, you know, roughly where they had been. The option now seems to be not raising taxes, but trying to make up the shortfall through austerity.

Marc Filippino
David Pilling is the FT’s Africa editor. Thanks, David.

David Pilling
Thanks very much, Marc.

[MUSIC PLAYING]

Marc Filippino
The US is looking for ways into Africa’s critical mineral reserves, and it might have just found one. Lifting sanctions on supposedly shady people. OK, it’s a little bit more complicated than that, but here’s what’s going on. Billionaire Dan Gertler has been under restrictions since 2017. He allegedly did corrupt deals in the Democratic Republic of Congo. But now the US wants in on his mining projects. Here to explain both the strategy and the geopolitics behind it all is the FT’s Harry Dempsey. He’s been following the issue. Hey, Harry.

Harry Dempsey
Hey, Marc.

Marc Filippino
OK, so tell me a little bit more about Dan Gertler and the deals that he’s done in the DRC.

Harry Dempsey
So Dan Gertler entered the DRC many, many years ago as a young diamond trader coming from Israel. And he became very close to the former president, Joseph Kabila. And using his close connections to the former president, he secured oil and mining contracts and concessions and royalties, and he acted as a middleman for many of the international groups to gain access to the country’s resources. And in particular, he holds royalties on three mines in the DRC. In 2017, he was sanctioned by the US, who had accused him of corrupt dealings in the country. He still remains under sanctions today.

Marc Filippino
And what’s then the rationale from the US here for lifting these sanctions on Gertler? Like, what exactly is the US after?

Harry Dempsey
Yeah. Well, I mean, first of all, it’s not quite lifting the sanctions. It’s a kind of conditional exemption to the sanctions. And so he’ll be given a licence to both sell those royalties, but also then a general license where he can access the US banking system. And so in order to try and facilitate a sale to a potential western party, the lifting of sanctions on Gertler would be very helpful. And as for why the US would do it, I think there’s sort of two or three things here. One is the Democratic Republic of Congo is a huge producer of copper and cobalt, and the three mines on which Gertler holds royalties, they are all significant copper cobalt mines. And both of these minerals are of massive importance to clean energy technologies. So copper is vital for power lines and all sorts of renewable energy. And then cobalt is a vital material used in batteries, particularly in longer-range electric vehicles that you would want to use in western markets. But China has a stranglehold over a lot of the processing capability for these minerals. It is also the biggest investor in the DRC.

Marc Filippino
Yeah. Harry, I’m glad that you brought up China. Tell me a little bit more about the competitive advantage that their companies have in the DRC that potentially makes this deal with Gertler more urgent for the US.

Harry Dempsey
I mean, it’s almost exclusively Chinese investment in the DRC and the US has just recognised this is a huge strategic issue. It cannot just leave this region to be dominated by the Chinese. And so the US has invested in a huge infrastructure project. It’s put through its development finance bank $250mn behind a railway line that will go from Angola into Zambia and the DRC in order to try and help get the materials out and send them west rather than east.

Marc Filippino
Makes sense, then, why Washington would be pretty eager to secure this deal in the DRC. What happens if they don’t, though?

Harry Dempsey
I think you gotta think that natural resources are the foundation of empires. And in this case, we’re moving away from the era of fossil fuels to a metals-intensive future of clean energy. And the foreign policy now needs to be guided by what’s really going to drive investment into that region. And it’s really taking on a new form of more muscular and sort of interventionist government policy that we haven’t really seen before. I think the US is really waking up to the edge that China has from having control of these raw materials. And it’s a real recognition that unless the US is more pragmatic, it’s not going to be able to compete with China to secure the natural resources that are going to underpin the technologies of the future.

Marc Filippino
Harry Dempsey is a commodities correspondent for the FT. Thanks, Harry.

Harry Dempsey
Thanks.

[MUSIC PLAYING]

Marc Filippino
Before we go, get your popcorn ready, or maybe just a Xanax, because the first debate of the US presidential election is happening tonight. The Republican frontrunner, Donald Trump, will square off against President Joe Biden. And it’s actually the first in-person meeting between them in four years. You can expect things like age, criminal convictions and the fate of American democracy to come up. We’ll have more on the debate in our Swamp Notes podcast on Saturday. You can check it out in this feed.

[MUSIC PLAYING]

You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.