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Image (“Dogs Dealing Unregulated Securities, after C.M. Coolidge” ) by Mike Licht. Download a copy here. Creative Commons license; credit Mike Licht, NotionsCapital.com
For information on artist and banker Cassius Marcellus Coolidge (1844 — 1934), look here.
by Z Allan Ntata
1. Introduction
This document outlines salient issues on the impending sale of Malawi Savings Bank limited. In the sale there are a lot of selfish motives sugar coated as if they are beneficial to the Bank but in the process the country will lose yet another important asset. The document covers the objectives of MSB, coverage, the agenda to sale under the disguise of compliance to Basel II, the tactics deployed, controversies surrounding the sale, consequences and the proposed ideal way forward.
2. Objectives of MSB
MSB is a former POSB established in 1910 with the objectives to:-
a) Provide Financial Services to both urban and the rural population.
b) Strategic partner to government in social and economic development. Where necessary the Bank is used to deliver government initiatives such as payment of government salaries in rural areas, facilitate importation of critical commodities such as fertilizers, medicines, etc.
c) Pursue the Financial inclusion agenda of Government. This is achieved through its wide network throughout the country so that people especially in rural areas do not travel long distances to access banking services.
d) Inculcate a culture of savings among Malawians especially in the rural areas.
3. Network
The Bank operates in all districts of the country. It is the largest financial institution in terms of Branch Network and outreach to the rural population. In total it has over 63 outlets inclusive of the forex bureaus, MRA onsite revenue collection, Immigration onsite revenues collection and Registrar General Collection points.
4. The illicit Sale Agenda.
The agenda of selling the Bank is propagated by selfish individuals under the disguise of meeting the :-
a) Conditionality of World Bank/IMF. The World Bank/IMF believes Government should not run Business such as Banks but the same Government is required to provide social economic services to the rural communities which are not that profitable many times. MSB plays that role.
b) Compliance to Basel II. Basel II is a framework to assist Banks manage financial risks well by maintaining a certain level of capital. In Malawi the RBM put minimum capital at the equivalent of US$5million (K2.2billion). MSB meets the minimum capital but not the optimum capital to meet the prescribed liquidity and capital adequacy ratios The irony is that there are very few countries in Africa that have adopted Basel II. None of our neighbours has implemented Basel II and yet their economies are stronger and bigger than Malawi’s economy.
c) Bad Debts that are eroding the Bank’s capital. The Bulk of MSB non performing loans belong to Mulli Brothers Limited. Why can’t Government intervene and have Mulli Brothers Limited forced to repay. Why should the whole nation lose a Bank just because of an individual company? In any case, the Mulli loan was granted through the previous DPP administration interference.
The reality and objectives of the proposed sale are:-
i) Enrich a few individuals. There are few people in position of influence that want to rob Malawians of their Asset (MSB) for their personal gains. The Governor of RBM, FDH Officials, Key Ministry of Finance Officials, MSB CEO and others are conniving to have the Bank sold so that they buy it for their own gains through the backdoor.
ii) Enrich a tribe at the pinnacle of power at the expense of the whole nation. All the influential people interested to buy MSB belong to a particular tribe. This is designed to enrich that tribe at the expense of the whole Nation. Why should the Asset of the whole Nation benefit one tribe?
ii) Pay off Mulli Brothers Debt through write off of the Bad debt. There is a proposal that as part of the sale process of MSB, the bad debts (Toxic Assets) must be removed before the buyer buys off. This translates to Government paying off the bad loan on behalf of Mulli Brothers (currently about K5billion). Why should tax payers’ money be used to pay off debt of an individual company?
5. The tactics.
The RBM Governor has deployed the following tactics to influence the sale:-
a) Scare off Government by inflating the Capital requirement for MSB to comply to Basel II. In reality the Bank already meets the minimum capital requirements for Basel II. To meet the optimal requirement, the Bank needs approximately K4billion only. When Government expressed willingness to pay K4 billion, the RBM Governor advised government that the Bank requires K23.7billion additional capital as a deliberate effort to scare off government. The RBM should be called to explain how they got to K23.7billion. Management of MSB can also be called to explain why they only need K4 to K5 billion.
b) Exert pressure on the Bank to meet Liquidity Reserve Requirement (LRR). MSB as part of serving Malawians in rural areas does operate in some unprofitable locations. It needed to be exempted from full compliance with LRR requirements. The RBM Governor is uplifting the exemption on LRR so that the Bank is seen to be failing, in order to justify the sale or closure of the Bank.
c) Capitalising on knowledge gap at Ministry of Finance. The current Secretary to Treasury is coming from the Academic background and not yet exposed to the politicking and machination that takes place in Government. Consequently the RBM Governor and Finance Ministry are exerting undue pressure to force him issue out instructions to sale the Bank to FDH at the expense of Malawians. The ST’s office is being manipulated by the Finance Minister and RBM Governor in selling the Bank without him knowing that he is promoting the interests of few individuals at the expense of the whole Nation.
Though unrelated but it may be worth noting that the FDH Bank Zomba branch is housed in a building owned by the ST.
d) Media Sensational articles. Deliberately releasing sensitive and confidential information about the Bank in the print and other media. The confidential information published by the Nations Newspaper is privy to the office of RBM Governor, ST and Ministry of Finance. The release of such information to the print and other media is a calculated move to de-stabilise the Bank, create sensational news and scare away customers. Should that trigger run on the Bank, then that should justify closure of the Bank and sell it at a song, just as it was the case with David Whitehead and Sons (M) Ltd.
6. Controversies on Sale.
The proposed sale of MSB is embroiled in several controversies such as:
(a) The Sale price. The sale price of the Bank is being pegged between K400 million and K800 million. Yet the assets of the Bank are worth in excess of K46billion as end of November 2014. For instance, Head office building alone is worth more than K800 million. What about ICT equipment, staff skills and other assets. This is tantamount to day time robbery.
(b) Government is being informed by RBM to re-capitalise the Bank by pumping in K23.7 billion. If Government can realise K800 million only after sale of the bank, what is the justification to spend K23.7 billion? The two aspects do not reconcile.
(c) Government intends to clear off bad debts/toxic assets (about K6 billion) and yet it will receive about K800 million maximum when the Bank is finally sold. Where is the logic here?
(d) If Government pays off Toxic Assets then the Bank would comply with Basel II and therefore no need for selling it. If Government is keen to pay off toxic assets then why does it not pay K4 billion capital and let the Bank move forward.
(e) If the sale of MSB is through the tender process, why should ST’s office issue instructions to PPP to sell the Bank to a small and private local bank? The PPP is in possession of such instructions. The current bidding process being undertaken by the PPPC is just a farce to cover up for the hidden agenda being concluded behind the scenes.
(f) Government wants to sell MSB under the pretext that Govt should not run such Businesses but at the same time it wants to start yet another new Bank. Why not improve the current bank?
The controversies on sale of MSB, highlighted above points to the fact that few individuals are geared at stealing such an important asset from innocent and unsuspecting Malawians using their positions of influence. The Basel II compliance is just being used as a scapegoat. Not many countries have adopted Basel II.
7. Consequences of sale of MSB.
Malawi Savings Bank plays a unique role in reaching out to the elite and ordinary Malawians in provision of Banking services in both rural and urban areas. Its sale shall have the following consequences:-
(a) Loss of National Asset. The Government and Malawians will lose this important asset that was promoting financial inclusion and assisting in economic development of the country.
(b) Financial Exclusion. The Bank maintains minimum book balances of K500 which enables many Malawians open accounts with it. There is no guarantee that the new buyer will maintain such minimum book balance requirements.
(c) Many people will not be within reach of Banking services. Since these Banks will be concentrated in urban centres, they shall create a divide between rural and urban people in terms of access to financial services. The main objective of the new owners will be profit generation hence most rural outlets will be closed to cut costs operational costs hence making rural people suffer.
(d) Reduction of Banking network. Most of the Rural Branches will be closed and therefore many Malawians will not be within reach of Banking services.
(e) Loss of Jobs. The majority of staff will lose their jobs as a new shareholder comes in. It happened in Standard Bank in the past. The Bank has in excess of 600 employees that may not be absorbed by new share holders that will be focussed on financial gains (profits).
(f) Loss of MSB brand. MSB is a history from POSB. This will be lost. The unique services the Bank provide in the rural areas will be lost.
(g) Enrichment of few individuals. Greedy people will buy off a National Asset at the expense of the whole nation.
(h) Defeats purpose of privatisation. The privatisation of government assets was meant to benefit the Majority of Malawians. However the impending sale of the Bank to tribesmen and few individuals in positions of influence is an abuse of office and denies Malawians of share ownership.
8. Proposed way forward.
Malawi Savings Bank has contributed to National development since its inception as POSB and later as MSB. The best way of disposing it is not by giving it to a few individuals or tribesmen on a silver platter or for a song. The best way is through the Initial Public Listing (IPO) on the Malawi stock Exchange through public share ownership where the majority of Malawians can participate.
The following is a proposed way forward:-
(a) Government can re-capitalise the Bank by injecting K4 billion and not the exorbitant figures being deliberately propagated by RBM to scare off government.
(b) The Management of the Bank should be tasked to improve the performance of the Bank in the next three years by among other things ensuring that the bad/toxic assets are collected.
(c) The RBM should be instructed to grant a LRR waiver to MSB on the understanding that the bank plays a developmental role in assisting Government by operating in rural areas. This waiver could be for maximum period of 2 years to allow the bank recover fully.
(d) Government sales the Bank in the third or fourth year through IPO on the Malawi Stock Exchange. This will have a viable institution owned by the majority of Malawians.
(e) Government should consider pending the formation of another Bank and instead restructure and recapitalise MSB with a view to empowering it to undertake more roles which would otherwise be undertaken by the proposed Development Bank.
Z. Allan Ntata is a Barrister of Middle Temple, Governance Specialist, Ex-Counsel to the President of Malawi and author of “Trappings of Power”. More details about him can be found on his website
Sponsored by the African Development Bank.
Shorter version focussing on points made by Thabo Mbeki and Benjamin Mkapa:-
My Comments
Whatever you choose to believe, here is one hypothesis you must seriously consider; That a nation that does not own its natural resources is not independent at all. That instead, what exists are different levels of servants (anchito) working for a foreign master (bwana) under a semi-sovereignity.
After all the unnecessary toiling, studying, chasing one research project after another that has preoccupied my time the last two years, I have come to the sobering,inevitable and unsurprising conclusion that there is a worrying number of people who think you or someone like me doesn’t deserve much good out of this life.
A worrying number.
Some of these people think that if you are black and were born in Africa, in a country that is considered poor, in a family that does not have strong and powerful political allies, with little or no personal ‘fortune’ of your own, that your place on the socio-economic ladder is right there where fate (or an accident of evolution) created for you, exactly in the societal ‘bracket’ in which you were born. Where social / financial progression is an unattainable pie in the sky. In this place, a dead-end job is the best you can expect, and hand-me-downs or clothes sold in ASDA (or Walmart) with brands such as ‘George‘ and ‘White Stag‘ are worn. It’s a place devoid of vacations, where Sirloin steak is an unjustifiable luxury, and where a McDonald’s burger counts as a treat; where trips to the movies and broadway featured shows are unheard of, and golf – the preserve of the extremely wealthy. Lets just say it’s a place where a gym membership is not even a consideration when one’s salary can barely cover everyday expenses. In this place £7.50 spent on 400g cherries would be an obscene expense; it’s a place where a typical evening consist of dinner that costs less than $10 for a family of 5, (and does not include wine), and typical everyday entertainment is either Eastenders or some crap show on the radio, while drinking a bottle of Carlsberg.
These same people would have you believe that such a life is ‘normal’ or at least relatively normal. They bet on showing you a worse existential state to justify that while they exploit your resources (and make lucrative deals with your country’s selfish and spineless politicians), they are doing you a favour, you are in fact getting a better deal than that guy over there, in whose country a war has been raging for years, where women are unsafe and rape is commonplace, that guy’s country has virtually no education system in place, and look, armed guerilla fighters! In a country with no local currency, courts presided by warlords and a society infested with corruption….
Such scare stories are meant to somehow pacify your human (umunthu) and natural rage against what is clearly injustice against your brothers and sisters. Injustice which in other forms sees you called black monkey’s in your own country. They are the kinds of people who in Victorian times would have suggested (or mixed with people who were likely to suggest), without qualms, that a woman’s place is in the home; that women should not be allowed to work or vote. These are the kinds of people who would have owned the cotton mills (or mixed with people who owned the cotton mills) of Manchester and South Carolina, including being at the forefront of recruiting cheap child labour – for maximum profit. They are the kinds of people who would have been involved in the mistreatment of Jews throughout a large part of European history. These kinds of people would have suggested to Pontius Pilate that because Jesus was a friend of the poor and ‘rejects’ of society, that he indeed deserved the most severe punishment for calling himself the son of God.
The haughty demagoguery of these sorts saw them perpetrate beliefs such as Manifest destiny, Supremacism and the Slave trade, and their puppets coin phrases such as ‘Axis of Evil‘ and ‘War on Terror‘. For the purposes of this article, not least dramatic effect, I’ll call these people the Greedy architects of death.
Yet aren’t these precisely the kind of attitudes which precipitate global unrest? Is this not what deprives humanity of peaceful coexistence and harmony? I say this because beneath the conflicts in Iraq, Afghanistan, Syria, Libya, Egypt, Ukraine, or even the economic troubles facing Zimbabwe, there is a simple altercation: that of land and resource control.
In the case of Zimbabwe, please reason with me for a moment. Why on earth should a country be punished with sanctions for wanting to take back land that was forcefully and deceptively taken away from it in the first place??? Don’t get me wrong, I’m not in support of violence, but what is it that lies at the heart of the matter?
Another facet to their characteristics is that of standing. Here, a common trait of the architect is opposition to any deal in which they aren’t getting a cut. In other words, when others do something bad, and these architects are not getting any money or resources from that bad something, then the action is wrong/unforgivable/ atrocious etc. But when the architects do that very same bad thing, they can can sugar coat it and self-righteously justify it…with phrases such as ‘Oil for food‘ and ‘Regeneration’, helpfully assisted by their Bretton Woods colleagues, with selective use of the biased chastisement whip commonly known as ‘International law’.
But how does all this relate to Malawi and the oil drilling on lake Malawi I hear you ask? Well, because at the heart of Malawi’s problems is land and resource control, and the puppet masters pulling the strings are exactly the same kinds of people brewing trouble elsewhere.
So, assuming you’ve heard of the Scotland independence debate, then even though I identify with old fashioned views that divorce must be avoided wherever possible and people must discuss to resolve differences, one part of me says that maybe Scotland should become independent from the UK. Because maybe then will they be able to use their resources for their own country’s benefit. Maybe if independence occurs, some of these architects will begin to realise just how their selfish and greedy actions have been hurting other people across the world?
In Europe maybe if Crimea joins the Russian Federation it will not be exploited by the pro-western kingpins of resource control – some of whom have probably been responsible for financial trickery or misconduct elsewhere?
Similarly, let the people of Malawi resist (at all costs and in whatever manner) drilling of oil on their beautiful lake because in the end, it’s not the local people who stand to benefit from the profits of the oil drilling. As the Paladin episode at Kayelekera has shown (and as other examples on the continent continue to demonstrate), it’s only a few corrupt government officials with off-shore bank accounts in tax havens in Switzerland or the British Virgin Islands who benefit. It’s large Investment Banks that provide the capital to the architects who will get the lions share, it’s a handful of millionaire tycoons with surnames like Borshoff and Ichikowitz, who live in mansions thousands of miles away and whose surnames the locals can’t even spell or pronounce properly, they are the ones who stand to profit. It is the Greedy architects of death (whose actions spur domino type effects, causing wars, and thereby suffering and hardship to millions across the world) who stand to benefit.
It sounds like a tedious link to make, but what has been the number one cause of unrest across the world if not battles for resource control?
That is my reason for opposing drilling on lake Malawi. Because while there is a high risk of environmental degradation which could affect the lives of fishermen who depend on the lake for their livelihoods (it happened in the gulf of Mexico, and happens in the Niger Delta all the times [see another link here via Amnesty International] – how can anybody sane think it will not happen on lake Malawi?), and which could negatively affect tourism and life ecosystems in and around the lake, in the end, there will be tears and loss as very few Malawians will benefit proportionally from the oil resource. In the end it could create strife….
But I’m not saying that the transactions a poor country such as Malawi signs with foreign ‘speculators’ are all bad or useless, and do not bring some material benefit to the country or its inhabitants. No, that’s not what I’m saying. What I’m saying is that comparatively, the benefit to Malawians is too small, too insignificant, chicken feed – unsustainable. In my view, it’s no more than a trojan horse that later comes back to bite and haunt the country. Instead, the net benefit of most of these deals is significantly in favour of these architects, who come into an area, pour in their capital, make billions of dollars in profits, then move out richer than they came in – leaving behind more than just a mess. Leaving behind broken lives,in which the local man remains economically where he was prior to the ‘invasion’, or even poorer, resigned to licking his wounds, as one aggressor after another wrestle for his country’s resources.
And that is hugely problematic because no matter who Malawians elect in May 2014 elections, if the status quo of dealing with investors is maintained, where African leader treat the national purse (and national assets) as private belongings, where investors are allowed to illicitly wire billions of untaxed funds out of the continent, if economic disparities across the country are not decisively addressed (in this I mean by creating companies in which trained locals are majority shareholders and investors are minority shareholders), if the leaders of western countries continue to be hypocritical over the well-documented conduct of business leaders from their countries, poverty levels will continue to linger in Malawi and across Africa for a very long time. And come next election very little would have changed, people will be scratching their heads, and you can come back and read this article again.
By the way, you don’t have to believe anything I’ve written above 🙂 . As I said in the first paragraph, it’s just a hypothesis, a theory based on my observations 🙂 … But even so, take a look at what these people here are saying (AfDB-GFI Joint Report: Illicit Financial Flows Render Africa a Net Creditor to the Rest of the World ; Sub-Saharan Africa loses 5.7 percent of GDP to illicit financial outflows ; Illicit financial outflows from Africa crippling continent’s development – UN ). With such stories of behaviour which is clearly hurting Africa, should Malawians really risk another Kayelekera? Would it be wise to entrust the lake to people whose number one motivation is profit and little else? Could anybody say the country is really independent? How can you justify independence when you depend too much on the help of others for your existence?
Similar
Flipping the Corruption Myth by Dr Jason Hickel, a lecturer at the London School of Economics and an adviser to /The Rules
– Corruption is by far not the main factor behind persisting poverty in the Global South. Original article via Al Jazeera here
* * * * * * * * = * * * * * * * = * * * * * * *
Transparency International recently published their latest annual Corruption Perceptions Index (CPI), laid out in an eye-catching map of the world with the least corrupt nations coded in happy yellow and the most corrupt nations smeared in stigmatising red. The CPI defines corruption as “the misuse of public power for private benefit”, and draws its data from 12 different institutions including the World Bank, Freedom House, and the World Economic Forum.
When I first saw this map I was struck by the fact that most of the yellow areas happen to be rich Western countries, including the United States and the United Kingdom, whereas red covers almost the entirety of the global South, with countries like South Sudan, Afghanistan, and Somalia daubed especially dark.
This geographical division fits squarely with mainstream views, which see corruption as the scourge of the developing world (cue cliche images of dictators in Africa and bribery in India). But is this storyline accurate?
Many international development organisations hold that persistent poverty in the Global South is caused largely by corruption among local public officials. In 2003 these concerns led to the United Nations Convention against Corruption, which asserts that, while corruption exists in all countries, this “evil phenomenon” is “most destructive” in the global South, where it is a “key element in economic underperformance and a major obstacle to poverty alleviation and development”.
There’s only one problem with this theory: It’s just not true.
Corruption, superpower style
According to the World Bank, corruption in the form of bribery and theft by government officials, the main target of the UN Convention, costs developing countries between $20bn and $40bn each year. That’s a lot of money. But it’s an extremely small proportion – only about 3 percent – of the total illicit flows that leak out of public coffers. Tax avoidance, on the other hand, accounts for more than $900bn each year, money that multinational corporations steal from developing countries through practices such as trade mispricing.
This enormous outflow of wealth is facilitated by a shadowy financial system that includes tax havens, paper companies, anonymous accounts, and fake foundations, with the City of London at the very heart of it. Over 30 percent of global foreign direct investment is booked through tax havens, which now collectively hide one-sixth of the world’s total private wealth.
This is a massive – indeed, fundamental – cause of poverty in the developing world, yet it does not register in the mainstream definition of corruption, absent from the UN Convention, and rarely, if ever, appears on the agenda of international development organisations.
With the City of London at the centre of the global tax haven web, how does the UK end up with a clean CPI?
The question is all the more baffling given that the city is immune from many of the nation’s democratic laws and free of all parliamentary oversight. As a result of this special status, London has maintained a number of quaint plutocratic traditions. Take its electoral process, for instance: More than 70 percent of the votes cast during council elections are cast not by residents, but by corporations – mostly banks and financial firms. And the bigger the corporation, the more votes they get, with the largest firms getting 79 votes each. This takes US-style corporate personhood to another level.
To be fair, this kind of corruption is not entirely out-of-place in a country where a feudalistic royal family owns 120,000 hectares of the nation’s land and sucks up around £40m ($65.7m) of public funds each year. Then there’s the parliament, where the House of Lords is filled not by-election but by appointment, with 92 seats inherited by aristocratic families, 26 set aside for the leaders of the country’s largest religious sect, and dozens of others divvied up for sale to multi-millionaires.
Corruption in US is only slightly less blatant. Whereas congressional seats are not yet available for outright purchase, the Citizens United vs FEC ruling allows corporations to spend unlimited amounts of money on political campaigns to ensure that their preferred candidates get elected, a practice justified under the Orwellian banner of “free speech”.
The poverty factor
The UN Convention is correct to say that poverty in developing countries is caused by corruption. But the corruption we ought to be most concerned about has its root in the countries that are coloured yellow on the CPI map, not red.
The tax haven system is not the only culprit. We know that the global financial crisis of 2008 was precipitated by systemic corruption among public officials in the US who were intimately tied to the interests of Wall Street firms. In addition to shifting trillions of dollars from public coffers into private pockets through bailouts, the crisis wiped out a huge chunk of the global economy and had a devastating effect on developing countries when demand for exports dried up, causing massive waves of unemployment.
A similar story can be told about the Libor scandal in the UK, when major London banks colluded to rig interest rates so as to suck around $100bn of free money from people even well beyond Britain’s shores. How could either of these scandals be defined as anything but the misuse of public power for private benefit? The global reach of this kind of corruption makes petty bribery and theft in the developing world seem parochial by comparison.
But this is just the tip of the iceberg. If we really want to understand how corruption drives poverty in developing countries, we need to start by looking at the institutions that control the global economy, such as the IMF, the World Bank and the World Trade Organisation.
During the 1980s and 1990s, the policies that these institutions foisted on the Global South, following the Washington Consensus, caused per capita income growth rates to collapse by almost 50 percent. Economist Robert Pollin has estimated that during this period developing countries lost around $480bn per year in potential GDP. It would be difficult to overstate the human devastation that these numbers represent. Yet Western corporations have benefitted tremendously from this process, gaining access to new markets, cheaper labour and raw materials, and fresh avenues for capital flight.
These international institutions masquerade as mechanisms for public governance, but they are deeply anti-democratic; this is why they can get away with imposing policies that so directly violate public interest. Voting power in the IMF and World Bank is apportioned so that developing countries – the vast majority of the world’s population – together hold less than 50 percent of the vote, while the US Treasury wields de facto veto power. The leaders of these institutions are not elected, but appointed by the US and Europe, with not a few military bosses and Wall Street executives among them.
Joseph Stiglitz, former chief economist of the World Bank, has publicly denounced these institutions as among the least transparent he has ever encountered. They also suffer from a shocking lack of accountability, as they enjoy special “sovereign immunity” status that protects them against public lawsuit when their policies fail, regardless of how much harm they cause.
Shifting the blame
If these patterns of governance were true of any given nation in the global South, the West would cry corruption. Yet such corruption is normalised in the command centres of the global economy, perpetuating poverty in the developing world while Transparency International directs our attention elsewhere.
Even if we do decide to focus on localised corruption in developing countries, we have to accept that it does not exist in a geopolitical vacuum. Many of history’s most famous dictators – like Augusto Pinochet, Mobutu Sese Seko, and Hosni Mubarak – were supported by a steady flow of Western aid. Today, not a few of the world’s most corrupt regimes have been installed or bolstered by the US, among them Afghanistan, South Sudan, and the warlords of Somalia – three of the darkest states on the CPI map.
This raises an interesting question: Which is more corrupt, the petty dictatorship or the superpower that installs it? Unfortunately, the UN Convention conveniently ignores these dynamics, and the CPI map leads us to believe, incorrectly, that each country’s corruption is neatly bounded by national borders.
Corruption is a major driver of poverty, to be sure. But if we are to be serious about tackling this problem, the CPI map will not be much help. The biggest cause of poverty in developing countries is not localised bribery and theft, but the corruption that is endemic to the global governance system, the tax haven network, and the banking sectors of New York and London. It’s time to flip the corruption myth on its head and start demanding transparency where it counts.
Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules.
Follow him on Twitter: @jasonhickel
‘We chose democracy & human rights over banks’ – Iceland president to RT
Just one of many inspiring videos, links and pictures which I have been watching lately. See more links and videos below:
We want our NHS back – north London campaign
Russell Brand vs. Jeremy Paxman on Newsnight 2013 [Full Interview]
Korean cigarette firm pulls ‘racist’ monkey ads – via BBC
Five Lessons From Zimbabwe’s Richest Man, Strive Masiyiwa
I prefer to ask (and answer) the above question, that references to the ‘stage’ or ‘point’ (not physical location) when asked ‘Why is Africa not manufacturing?’ . I’ve been asked this question so many times, by people beffudled as to how Africa pretty much fails where everybody else has succeeded. The reason I prefer to answer the above question is because unlike popular belief Africa is in fact manufacturing, just not as much as everyone else, and just not always visibly (you don’t hear these stories on Tv, and they are rarely in the mainstream media publications – unless you read FT – although that’s arguably not mainstream)
Similar to the questions of manufacturing is that of whether the skills for the establishment of a bigger manufacturing sector are readily available for investors to tap into?
I’ll start with the bad news:- If the skills are available on the continent, then as things stand, they are in severe shortage and are not really of African origin. According to research from OECD [see BBC link here], by the end of this decade (emphasis required, that’s by 2020) 4 of every 10 young graduate is going to be either from India or China. Looking at the list of countries listed, not even a single one is an African country. What does that say? Well, a number of things; that we are not producing enough graduates, or that the number of African graduates with skill sets (and of a high calibre) who can compete with their contemporaries from Chinese and Indian universities is comparatively insignificant. Which is worrying, because it essentially means Africa’s manufacturing is nowhere, or only material if driven and held together by non-African effectors.
In the past the Education of Africans has received very little support from those who should know better. Most dictators who took over from the colonialists did too little to maintain the standard and level of Education (or Higher Education) across Africa, focussing instead of consolidating their rule. With a few exceptions, multiparty governments that came after dictatorships followed suit, by not investing anywhere near enough as was necessary. The donors that were bed-fellows with the dictators (and those that came after) arguably weren’t as sympathetic or visionary. According to an ESSA paper (quoted in this paper titled “THE ROLE OF HIGHER EDUCATION IN AFRICA” by Prof.Dr.Birgit Brock-Utne of the Institute for Educational Research at the University of Oslo) the World Bank once viewed Higher Education in Africa as a luxury:
Expenditure on education was merely a self-serving budgetary exercise, and it didn’t matter what the result was, or whether indeed Africa would be ‘left-behind’ as a direct consequence of the under-investment, what mattered was only that money had been saved.
Without research into what their policy position currently is, I wouldn’t be able to tell you whether this view has changed or not.
Investors with the means have been to put it mildly, shy of investing on the continent let alone into skills development. A paper by a researcher named Paul Bennell which addresses the issue of whether structural adjustments programs ( these are those stringent rules imposed on African countries as part of loan agreements from the likes of IMF and World Bank) over a 15 year period have indeed achieved the desired response (i.e. increasing foreign investment in the hope of triggering technology transfer from the industrialized countries to Africa) paints a depressing picture. To quote Bennell (via this link):
Surprisingly, the share of net earnings from UK manufacturing investments in Africa remitted each year to the UK was higher than the global average between 1985 and 1990 . . . While UK companies have been keen to reinvest very sizable proportions of their profits in North America, Europe and Asia, investment opportunities in manufacturing have generally been very limited in Africa and thus, given the option, most parent companies would like to remit the bulk of subsidiary profits from the region
In other words, Africa was where you went to make your money, and not a place to reinvest your profits.
But it isn’t all bad news.
Recently, the African Development Bank’s (AfDB) approved a US$ 45 million grant for the creation of a Pan African University (PAU) that will consist of five Pan African Institutes focussing mainly on science, technology and innovation. The background to the story reads:
Africa has only 35 scientists and engineers per million inhabitants, compared with 168 for Brazil, 2,457 for Europe and 4,103 for the United States. Shortage of skills has been a major constraint to Africa’s progress in science, technology and innovation. Due to low investment in research and development, Africa ranks low in global competitiveness and productivity. African students tend to opt for economics, business, law and social sciences rather than science, engineering and technology, hampering the continent’s competitiveness and growth. The result is a mismatch between skills produced and private sector jobs.
While one would hope this initiative will be a success, and the Institutes will not falter under the common problems that beset universities and research institutions across much of Africa, it will be interesting to see how this develops.
As is well understood universally, innovation is the lifeblood of industry, and without the creation of ground-breaking and new products, a country cannot advance or gain a competitive advantage. It was the case during the industrial revolution, during the rise of countries such as Germany, Russia, Japan and even Brazil. The exception (only to an extent) to this rule appears to be China, but that’s for a whole load of other reasons that distinguish it from the rest of mankind
But as the African Development Bank correctly observed above, in order to create ground-breaking innovations and products, and in order to influence global scientific research and technology, you need a skilled workforce. That’s why the AfDB initiative represents a realignment of Africa’s potential in the right direction.
Across Africa, there are many success stories that are truly inspirational, although as i stated above, these are not shouted about in the mainstream media. One such inspirational story is that of Fabrinox, a south African company manufacturing sheet metal that was formed in 1993, and that has seen turnover in recent years hit US$5.8 million. Asked what had been the best decision he had made to grow his company, the company founder says:
To have followed the advice of my business mentor Johan Beyers to not restrict Fabrinox and its people to one geographical area, product or service, but to take a global view in running the business. For instance, it means that we think globally in terms of our supply chain, and are most willing to service clients beyond the boundaries of the Western Cape province in which we are located, and South Africa for that matter.
In addition to such success stories, there are also many partnerships between foreign manufacturers and agricultural producers across Africa, and some of those partnerships are genuinely beneficial to Africans. Who knows maybe some of these could one day pave way for an African manufacturing industry of its own, if some haven’t began to do so already? After all, manufacturing in industries such as motorcycle build and assembly in China began when after purchasing equipment from Japan, the Chinese assemblers began to modify the Japanese made components; fast forward a couple of decades, and China was making its own motorcycles which essentially were improvements (i.e. “innovations” more or less) of the original Japanese models.
The partnerships article above correctly points out that:
The level of mechanisation in African farming is still very low. Kenya had 25 tractors per 100 square kilometres of arable land in 2009 while Nigeria has almost seven, according to the most recent data from World Bank. That compares with an average of 271 machines in the US.
There are also some manufacturers who are looking towards Africa not because it’s ideal, but because they are getting sick and tired of the happenings in Asia (workplace safety that in recent years has become a major issue, levels of corruption, the increasing fees demanded by some factory owners, etc)
But before anybody gets too excited, look, the Chinese are planning on setting up shop in Africa! (see here and here). Although here one must wonder, does that mean Chinese labour (as they have been known to do in some African countries across the continent) or will these factories use African labour?
As for the power that will drive everything and get every bit of machinery working (in some countries – putting an end to years of intermittent blackouts), that’s about to get much more exciting. At least that’s what Obama seems to be saying.
While you’ll find several references to Infrastructure on this site, I think this time around I’ll leave it to the experts to do the convincing. Paja akulu anati mutu umodzi siwusenza denga…
And if one takes time to browse through the cited references below (some of which are straight off page 1 + 2 of Google), it’s hard to argue against the fact that Infrastructure is one of the essential drivers of economic development. In this sense, and for the avoidance of doubt, infrastructure is not limited to roads, railways, airports and buildings (for hotels, schools, Universities, hospitals, business centres, research facilities, etc), but also includes for example a good telecommunication network (internet, voice, data and the like) and power supply.
Infrastructure for sustainable development – European Commission
Intro reads: ” Good quality infrastructure is a key ingredient for sustainable development. All countries need efficient transport, sanitation, energy and communications systems if they are to prosper and provide a decent standard of living for their populations. Unfortunately, many developing countries possess poor infrastructure, which hampers their growth and ability to trade in the global economy. “
Infrastructure’s value to economic growth – Richard Lee, Partner, KPMG (via BBC)
which includes the statement : “…In fact, a recent KPMG International survey found that an overwhelming majority – 90% – of business executives said that the availability and quality of infrastructure affects where they locate their business operations…”
Malawi Ace 