South Africa’s Trade with EU member states – a treemap

Source: South Africa Market Insights

Nde tikamati we’ll create a million jobs, we also have to look at what we’ll be making and where we’ll be selling those goods beyond Malawi’s borders.

Otherwise you risk rushing through a policy to create jobs for jobs sake, where the added value or actual benefit or productivity is negligible, and where the global demand for the manufactured products is low.

The treemap above shows what South Africa exports to EU countries, and is dated April 2019.

Added Value

P1040217 P1040218 P1040219

It really doesn’t have to be something complicated. It can be a natural resource such as water from a spring, bottled and marketed to the likes of Walmart. Or it could be Mangoes, Tomatoes, or even Tea. The trick as always is to add value to the raw material, which inevitably will enhance the sell price.

They do quite an admirable job of this added value business in Kenya. In particular, with Mount Kenya tea. Lets see, they have managed to convince Marks & Spencer, the £9.9 billion British multinational to stock it. Similar story with the Body Shop, who source tea tree oil from farmers on Mount Kenya, recently to the tune of $1.8 million (between 2009 – 2010), a sum which according to the article above, is part of a $1.8 billion project.

Links

1. Alnoor Mount Kenya Tea

2. The Unique Tea Growing Regions of Kenya

3. THE MASTER PLAN STUDY FOR KENYAN INDUSTRIAL DEVELOPMENT (MAPSKID) IN THE REPUBLIC OF KENYA – JAPAN INTERNATIONAL COOPERATION AGENCY (JICA)

4. FOR FOOD, AGRICULTURE, AND THE ENVIRONMENT FOCUS Case Study: Kenyan Fish Exports

5. Kenya’s Intra Africa Horticultural Trade Executive Summary

6. Kenya’s exports stay at 25pc of GDP

Stocktaking: 24 pressing problems impeding Africa’s Economic Development

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It is an obvious fact that Africa’s problems are bigger for one country, government or corporation to tackle. That although much has been done over the years in way of addressing some of the problems Africans have to live with every day, including efforts (some of which involved pouring hundreds of millions of dollars of aid into governments, causes, charities and other concerns within Africa) by numerous individuals, leaders, companies and countries, the mantle of developing Africa  was always going to be heavier, the task rather gargantuan and complex, requiring a creative approach.

Neither the Gates Foundation, nor several other high-profile billionaires and millionaires, or for that matter anybody else who over the years has/had expressed strong desire and acted to help Africa, would be able to tackle African problems alone. Not without concerted and determined effort from Africans themselves. Which minimally probably shows that tackling the problems was never a linear equation: You couldn’t pour in loads of cash, then presto! –  a developed Africa comes out the other end.

Thankfully, most of these people and organisations working for the advancement of Africa are smart enough to acknowledge that. Knowing that the problems are deeper, often multi-faceted and complex, giving a challenge that is probably as tricky to resolve as it is inviting. Philanthropists are also practical enough to realise that while essentially it’s a ‘war’ against a long list of challenges, they may never win all the ‘battles’ in that war.

However, what is surprising is that few Africans realise the extent and level of effort that is required to transform their continent, and many take it for granted that civil wars, corruption, HIV/Aids and poverty are the main problems in Africa. In addition, it is disconcerting to note that some philanthropists continue on the same aid path or approach which hasn’t worked the last 50+ years.

There have been many books written about African development [1,  234 and 5 to name a few], many articles too [including 1,  23 and 4 ], numerous videos [like 1, 2, 3], speeches, all of which are informative and worthwhile their time and content. But even they seem to have received a coy reception, certainly have not been given the attention they deserve, their advice not widely embraced by most political leaders and other stake holders on the continent, which begs the question: If the techniques of the past haven’t worked, and the new one’s being suggested are not being adopted, or at least not tried out, why should the old tactics somehow produce different results this time around? Proponents of the old aid model argue that Africa is now at a different place, where factors such as improved telecommunications and transportation links have empowered local people, meaning the old methods of disbursement of aid have a better chance of being effective now than they previously did before – when the integers were absent. This to an extent is true.

But what does bringing development to Africa actually mean? Is increasing the numbers of people living on $2 or more a day development? Or is it eradicating Malaria, Tuberculosis, H.I.V, Cholera, typhoid and other health threats? Is supplying truckloads of pharmaceutical equipment a form of development? Or is building a pharmaceutical company to synthesize drugs within Africa a form of development? What about reducing unemployment and providing more opportunities for further education? Or achieving the kind of relative peacetime  prosperity seen in North America or Europe in recent times? As you can see, all these could be said to be tenets of Development.

What makes the task of ushering in economic development more complex is that not only are the many obstacles impeding the implementation of policies that could transform Africa inter-related, but some of those obstacles do not appear to be obvious to those who have the power to effect change. To put it figuratively, it’s difficult to fight a war, any war, unless all, or at least most of your generals AND soldiers clearly understand the enemy (and their tactics).

Thus, in my view, Africa’s 24 most pressing problems (in no particular order) include:

1 – Far too many imports from outside of Africa and not enough high value Exports to balance the trade deficits. Not only is there a reluctance to delve in to hi-tech industries with potentially large earnings, but it appears like African countries are content to import things from Asia, Europe and the US and few people are asking the questions of:-

(i) whether it is possible to make some of these products within Africa?

(ii) Whether there may be an alternative product on the continent, which can be used in place of a foreign product?

In contrast, most European countries have large volumes of inter-trade amongst themselves, and when the EU has  set carbon emission targets, there’s a growing trend in some countries that something is to be imported from afar only if it can’t be cost-effectively produced locally, if it can’t be shipped, or if it can’t be imported from a nearby country. This point is related to the next point:-

2 – There is not enough trade amongst African countries. Consider this statement:

“…These costs are most acute for landlocked countries, which are heavily reliant on neighbour states to reach international export markets. The World Bank has estimated that upgrading road linkages between the Central African Republic and the DRC could increase intra-African trade by between $10 billion and $30 billion a year.” and here “…At the moment, the vast majority of goods are being imported from abroad. So if anything, rather import those goods from South Africa, and lock in some of the revenue in the region, than import them from abroad.” (Africa’s grand free trade area and what it will mean for business, by Jaco Maritz, www.howwemadeitinafrica.com )

3 – Archaic agricultural practices in much need of efficiency vectors  (i.e. Trucks, ploughing, planting and harvesting machinery, pesticides, availability of cheap manure / fertilisers, modern Silos (not the thatched ones made from sticks, string and mud- which arguably results in loss of a high % of the harvest / yield through rotting and attack from pests [mice,termites, etc]), widespread adoption of irrigation  and such like,  all of which will have significant benefits to African agricultural capacity and the quality of yield–> potentially ending hunger/ food shortages within Africa) [New farming practices grow healthier children]

4 – Bad and underdeveloped infrastructure:

” Distances in Africa are usually great, with rivers seldom being navigable, making long railroads the most efficient alternative. However, many companies have had difficulty maintaining output on the limited system. Rio Tinto, the third largest mining company in the world, has recently demonstrated the effect a lack of infrastructure can have on mining operations. This month it was revealed that the company had to devaluate its coal exploiting operation in the Tete province of Mozambique by 3 Billion US$. All in all, Rio Tinto carried out write-downs amounting to 14 Billion US$, forcing its boss, Tom Albenese, to step down. An insufficient transport infrastructure has been mentioned several times as the central reason for the company’s losses. While Rio Tinto’s coal operations in that area have production capacities of about 10 million tons a year, the respective railway connection to the sea can only cope with between 3 and 4 million tons a year.” – Fabian Scherer, Political Analysis South Africa.

Africa needs bigger, longer, better Roads & Railway lines:- why isn’t Johannesburg connected to Nairobi by high speed rail? Or Addis Ababa to Kinshasa via Kampala by high speed rail? Who is going to create this infrastructure that could prove pivotal in transforming Africa’s fortunes, if not Africans themselves? Isn’t it obvious that creating transportation links [which would provide thousands of people with jobs] between the big cities of Africa will improve trade [opening up national markets to local traders, reduce turnaround times]  and reduce the cost of travel [thereby encouraging tourism and movement of ideas], all of which are positives for spurring economic development?

Africa needs 21st Century Airports [of the standard of King Shaka]  to allow travel between Africa and major international cities and give a positive first impression to international visitors. Not only airports, but modern hotels fit for the 21st century, upgrading the archaic and run-down buildings that define most African cities and constructing newer, more suitable buildings to attract business; we should put an end to unreliable power supply, water cuts and build business centres equipped with modern facilities as those found in western countries; Real investment into the Tourism industry – why should African tourism be expected to be mediocre? Below average and generally not up to scratch? A few years ago, a family friend who had visited Mozambique and Tanzania hinted of her displeasure when she found cockroaches and spiders in some of the rooms in the resorts she and her friend stayed in; the brown stains in the bathrooms, and scents in the rooms. This is even before we get to the aircon. Talk of ‘African standards’, which is really an excuse for not maintaining high standards.

We have to upgrade our infrastructure and facilities to a high standard, only then will we be confident to compete with cities in Asia and South America and other emerging business destinations which are fast becoming popular places of investment. In any case, just because we have been resigned to living with pot-holes, experiencing intermittent power cuts and working in buildings without air conditioning doesn’t mean that investors / visitors will tolerate the absence of such basic things, and return / recommend us to their friends.

5 – Under-educated, incompetent, power-hungry, corrupt and spineless leaders: Africa has too many leaders with no vision, who are extravagant, out of touch with the people and having no sense of urgency regarding the gravity of the problems their countries face and their far-reaching effects. It appears as though there is lack of understanding as to how economies develop within the leadership of some countries in Africa. The reasons for this may include stubbornness, and ignorance of the developmental histories of countries such as Russia, the US, Britain, Germany, China, Canada and Brazil. It may also be because of political pressure from donors, whose aid has strings attached, and arguably restricts the kind of sustainable development policies which are much in need.

Often it appears as though trying to remain in power and acquire wealth are much greater priorities than good governance, and there are few examples of cross-party inclusion in governments. Also, I doubt how many African politicians know the real meaning of good governance.

Unless Africans unite to put their leaders to task, so that they deliver what the continent needs, or else be shown the door out, development will struggle to come by. This point is also related to point 13 below–which is related to points 15 and 19.

This is because it is difficult for Africans to vote out their corrupt politicians when most people in the rural areas -who form the majority in most African countries – live in poverty, and are often ‘palm greased‘ with handouts (including free food [maize], livestock and money) in an attempt to seduce them into voting for the same corrupt officials the continent does not need.

6 – Security: If I can’t send a smartphone via ordinary post from Manchester to Lilongwe without it going missing, what does that say of our security? Irrespective of where in Africa it went off the radar, is that good enough for Africa? How come electronic products destined to the US (or coming from Asia) get to their destinations? Will that be good enough for investors? Doesn’t such influence postage prices to be high — which in itself pushes up the cost of doing business? Africa must improve its security on all levels to attract investment. From ensuring that visitors feel safe to safeguarding our borders against infiltration of terrorists and drugs, there are no two ways about this.

7 – Low self-confidence and lack of assertiveness. If it is true that the oil troubles in Nigeria are costing Nigeria over $1 billion each month,  and have much to do with opposition to foreign corporations, why doesn’t the Nigerian government task the local oil companies to join forces with the foreign corporations under joint ventures to collectively exploit Nigeria’s resources? And in the midst of such theft, why is the increased security to prevent and stop the wastage – and bring to book those who are responsible for theft  – not forthcoming?

8 – Ageism and under-investment in Young people

9 –Lack of sufficient Capital Investment for major projects with potentially large yields [Why Africa May Never Produce a Facebook Groupon Zynga or Google]

10 – Electoral processes that are not free and that are prone to abuse

11 – Media that is not free and that is not representative

12 – Poor Healthcare  and under-investment in Women’s Health: If investors are to invest in your continent/ country, do you have hospitals of a good standard for them to use if they, their families or their staff fall sick? Or are you expecting them to build their own hospitals??? Maybe their own schools and shops?? What is the general state of your country’s  maternity health? Do you have medicines and safe surgery facilities in your hospitals? Competent doctors and nurses?

How can economic development occur when the basic health facilities are not firmly in place?

13 – RegionalismRacism, Nepotism and ethnic discrimination.

14 –   Leaders obsessed with  luxury items

15 – Low standard of Education and low investment in high-quality Education. And it’s not just education for African children. If we send our children to learn in Europe, America, Asia, Russia, Japan and other places,  why couldn’t we create Universities and schools to attract ‘International’ students–those from outside of Africa? Maybe firstly partnerships or collaborations with European and US Universities (Univ of Nottingham in MalaysiaWeill Cornell Medical College in Qatar, Virginia Tech University-India, Technische Universität Berlin – Egypt ) could pave the way for speclialist learning institutions on African soil?  In any case, in an information age as we live in, employing and training teachers / lecturers from across the globe wouldn’t be an issue. Further, African born professors are teaching in some of the world’s top Universities across the world, why couldn’t we attract some of them, or at least use their services to train lecturers/ teachers of the same calibre, to provide educational instruction to African and non-African students, within Africa?

In addition, when webcasting technology is relatively cheap and accessible, surely there must be some lecturers around the world who for a set fee, would be open to providing an hour or two long lectures every week, in their subject of specialisation, during term time. This means it may be possible to run a University level course partly using ‘remote’ lecturers who are infact not physically present in the classroom, but are miles away, at MIT, Yale, Oxford or Cambridge, etc.

16 – Export Trade barriers (including protectionist measures by not only Western countries [who are buyers of African raw materials such as agricultural produce and precious metals] but also within regions in Africa). Unfortunately this factor is not entirely of our doing. Use of diplomatic channels or filing complaints at the WTO/ AU could go some way to resolve some of these obstructionist barriers to trade, but there are no guarantees that such would have any success, and essentially it boils down to diplomacy. However, bilateral treaties and widespread membership of organisations such as Fairtrade, including encouraging ‘supply chain ownership’ in certain industries may be viable alternatives. In addition, African companies should aim to have a presence in major cities such as London, New York, Shanghai, Hong Kong, Taipei, Paris, Tokyo, Rome,  Berlin, Frankfurt, Madrid, and Moscow and aim to float on the stock markets. Another suggestion is the establishment of Trade and Industry organisations (like UKTI) whose sole aim would be to represent African companies in these cities, assisting them with finding markets, vetting of suppliers, etc.

17 – Weak and under-resourced civil society organisations. This point is related to point 19 below. [A practitioner’s view of the UK social investment market ]

18 – Low proliferation/ penetration of information technology including TV’s, Computers and Internet connected mobile phones. While a lot of progress has been made in this regard, there’s still a long way to go.

19 – Misdirected Aid: Instead of providing aid only to charities, or to buy food and medicines for governments, philanthropists must begin to invest comparable sums in sustainable projects across Africa. This factor is related to point 9 above. Entrepreneurs who have the ideas, but not the capital need to be sought and those with sustainable ideas that have a market must be financed. This factor has the added advantage in that you are supporting independent trade (not linked by political ties) and ensuring that if corruption does occur in government — which 9/10 times it will, entrepreneurs are sufficiently resourced to continue providing jobs and creating infrastructure, and are not being victimized on ethnic or political lines. The opposite of this, which is common in Africa, is skilled and experienced entreprenuers being sidelined for not supporting a particular political party, or for not being of the same ethnicity, or clan as the ruling elite.

20 – Jealousy and lack of patronage for home-grown brands: It’s not only hundreds of thousands of people living in Manchester who support Manchester United. Even thousands of those who live in Nottingham, support Nottingham County, or Nottingham Forest. Probably not a perfect example, but in Britain (and many parts of  the developed world), home-grown is considered good. The local pub –not the one in town, the one just around the corner — is often  the place to wind down and have a drink. Irrespective of whether a yorkshire man, or an Irish chap owns the place. It’s the local pub, so a considerable proportion of people who live local will frequent it every now and again. And it’s not just about nationalities. Even the local curry (which will most likely be owned by an Asian) or the local Chinese (owned by a Chinese) is embraced, and favorited,  it’s about buying local. If there are  more than one local Asian takeaway / Chinese, some people take turns to visit each one every so often, or will patronise the one or two who appeal to their culinary tastes. One effect of supporting home-gown is that money is circulated within the local economy.

Unfortunately, in some parts of Africa, especially Southern Africa, this is not always the case. It is more likely that if a lakeshore resort is owned by a European, it will attract more business from Africans than if it is owned by a fellow African. While the reasons for such may be a lot more complicated, its effects couldn’t possibly be positive for African industry. In my view, Africans need to change this mindset.

21 – African achievers are not as visible, even in the internet age. Few high-profile role-models have been resourced or are willing to carry the flag of Africa across Africa with a positive message not only about their achievements, but about Africa itself. Often it’s left to celebrities, a handful of activists, some aid organisations, European rock stars and the foreign media to portray Africa’s reformed image- which they rarely do.

If you need evidence for this, you don’t have to do much: Ask any sample of young people aged between  14 – 18 in any  Town or village across Africa who they have heard of on this list: Koffi Annan, Kanye West, Dambisa Moyo, Will Smith, Youssou N’dour, Didier Drogba, Mo Ibrahim, David Beckham, Bob Marley, Femi Kuti, Haile Gebrselassie, Samuel Eto’o, Alek Wek, Wole Soyinka, K’Naan, Chimamanda Adichie, Omar al-Bashir, and Aliko Dangote.

The answers you get will be revealing, but probably not entirely surprising. It is more likely than not that most young people would have heard of a politician, British celebrity,  American actor/ musician or sports personality than an African businessman who had established a business empire in Africa. So Samuel Eto’o, or al-Bashir would probably be much more well-known than Mo Ibrahim. Further, young people are more likely to listen to Kanye West, K’Naan and Bob Marley, but have probably never heard of Dangote. Which probably means few young Africans know of the achievements of fellow-African outside politics, sports, music or the film industries.

In my view this is not a desirable scenario because it gives a false impression of African success. That the only professions or fields in which an African can truly excel is in the world of Sports, Music or Acting. Also, it deprives young Africans of the story as to how people like Dangote and Mo Ibrahim made their wealth.

Ideally if African achievers spoke out more of their success, and the large media houses broadcasted more of such stories, frequently, there’s probably a higher possibility that such could have an effect on the career choices more Young Africans make later in life, a factor that could influence development on the continent.

22 – Declining work ethic and lack of discipline.

23 – Religious Fundamentalism: Why are Al-shabab and Boko Haram which are terrorist organisations passed off as ‘islamic’ militant groups? And what of the Lord’s Resistance Army, why the semi-religious veneer? Or to put it differently, is it surprising that Mali, Nigeria, Uganda and Somalia, countries who have notorious militant groups also share common denominators of ethnic or religious divisions and extreme poverty? [see here] African leaders must address religious fundamentalism. One solution may be to encourage education and have more educational endeavours in the villages / rural areas. Thus, this point is related to point 15 above, in that as more people in the rural areas become educated, it is likely that acts of religious fanaticsm will greatly reduce.

24. Foreign Corporations:

Dozens of Western multinationals have made millions of pounds in profits from exploiting African bio-resources taken from some of the poorest nations on earth, with not a penny offered in return.” declared Andrew Buncome in the Independent.

It’s impossible to overemphasize this point:- Foreign corporations do not come to Africa to develop the continent. They come to make a profit, and often a very large profit. Usually, this money does not remain in Africa, to be used for development purposes or suchlike, but instead it is wired out to be paid to their own investors and shareholders, eventually trickling into their own economies in Europe, the US, etc. Yet the resource that makes the profits possible is African, belonging to Africans. Why then don’t Africans benefit from it? Because foreign corporations -who have the  technology to exploit those natural resources – do not come to Africa to develop the continent. But to make themselves a Profit. Ask anyone with half a Brain about this sorry fact, and they’ll tell you the same thing.

Africans must learn this simple yet obvious fact. It must be ‘engraved on the palms of every African’

Just as the Chinese (the list is long and includes South Koreans, Brazil, Argentina and others) are now developing their own natural resources and those of other countries, using their own companies, and controversially in the case of China, their own labour, Africans have no option but to gain the much-needed confidence to exploit their own resources using African companies and African labour. There is no other way around this if economic development is to be effected, and you can return to this article in 20 years time, and this fact will most certainly not have changed.

Further, lack of expertise, equipment or experience are not excuses. Equipment can be bought, trainers with experience sought and hired to provide training, and experience obtained through practice in industries as diverse as Mining, Oil extraction and Bio-technology. To put it in a different way, what can African industry learn from National Iranian Oil Company which is run by Iranians, for the benefit of Iran?

Another similar view:

“Africa has lost significant revenue over the years through its failure to adequately capture proceeds from resource extraction on the continent.” – Annie Chikwanha, Resource Nationalism in Africa and Beyond, Africa Protal

And here:

The corporations use the labor and land, the people pay the price. It is absolutely modern day slavery. It is exploitation and makes you think about a 500 year history of exploitation of the African continent from its people during the days of slavery and now its resources”  – Emira Woods, director of Foreign Policy in Focus, Institute for Policy Studies.

What more can one say.

Yet if all of the above were addressed, it is not difficult to see how life on the continent could be significantly improved. But that’s not to say that all problems can be resolved overnight. Not at all, but when some of Africa’s problems have been around for over 50 years, surely if the right approach was being undertaken, it would have borne some kind of tangible fruit in all those years?

While an idyllic state of wealth, health and comfort is not achievable anywhere (even Europe has a fair share of ailing economies, let alone Eastern Europe), with even rich countries having sections of their population who languish in debt and poverty, but wouldn’t you say that if most of the above problems were addressed,  most African economies would have achieved some admirable form of economic development?

Similar links:

1. The BRICS and Africa’s growth dilemma

2. Lack Of Clean Water In Africa Documentary

3. Meet The 14-Year-Old Girl Who Developed A Low-Cost Water Purification System

Rich Warm Heart

A Vision and Organisational Template for creating Sustainable Economic Growth in Malawi [Part 1]

(c) European Union
Image (c) European Union

When injustice becomes law, resistance becomes duty.

– Thomas Jefferson

 

“Consume less; share better.”

― Hervé Kempf

[This article is written in a non-academic accessible format primarily to provide as much information as possible. It is the writer’s personal opinion. A ‘cleaner’ peer-reviewed version with standard citation format, references and supplementary resources will be posted on this website at some point]

aid

Almost every Malawian I know agrees that Malawi’s economy cannot continue to rely on foreign aid for much longer. That by expecting others to help us run our country, we had effectively given up our sovereignty, and any incentive to make our own choices. But it’s much harder to find consensus on what the country must actually do to wean itself of developmental aid.  Some Malawians think the answer is in Agriculture. Others think Manufacturing is the way while another group think Information Technology and the next Facebook. Scores more think exporting Sugar, Kachasu, Chibukhu or even Nkhotakota Gold may be the way.

With tobacco exports declining in industrialised countries (see extensive report here – via Time Magazine) and a determined anti-smoking lobby, tobacco will soon (if it hasn’t already) cease to be to a reliable export crop which Malawi can lean on.

Presently, around 40% of Malawi’s annual budget comes from donors including the African Development Bank, Britain, Germany, Norway, the European Union and the World Bank. A greater proportion of the rest is raised from tax revenue.  Such monies are primarily spent on general government expenditure including salaries of civil servants, food, fuel and “fire fighting” one crisis or another, with few resources allocated to creating developmental projects with a potential to generate large Forex for the government.

Inevitably, this has created a situation where some donors have used this state of affairs to exercise influence over public policy, including erecting somewhat unreasonable demands like devaluation of the local currency.

When their demands have been challenged or are not fully met, they have threatened to withdraw, or have actually withdrawn budgetary support, which has led to economic instability.

The recent example of this came when former president late Bingu Wa Mutharika probably with good reason refused to devalue the Malawian Kwacha, citing the cataclysmic effect such an action would have on the fledgling Malawian economy, and the suffering it would cause. The donors pulled out, pushing the Malawian economy to the brink of collapse and causing a massive fuel and Forex shortages, and exponential rise in prices and commodities. There were sugar and water shortages, crippling businesses, including some well-established companies. Some businesses threatened to leave Malawi, thousands of jobs were lost, and at least one international airline suspended flights. In a comical twist, hundreds of motorists began leaving their cars parked in queues at gas stations for days on end, walking home instead, to wait for when petrol would arrive. Even the police force, having been unpaid for months, was allegedly charged to fend for itself, with disastrous consequences.

Since then, a lot has changed. Malawi has a new president, Her Excellency Joyce Banda, who is Malawi’s first female president and only second female president in the history of Africa. The local currency, the kwacha has been devalued by around 40%, donors have returned and emergency funds pumped into the economy. But numerous problems remain; The economy has not responded as expected and the cost of living has risen sharply. Many commodities are now twice as expensive as they were a year ago, and nobody can say for sure whether given similar circumstances in the future such a scenario would not repeat itself, causing further suffering.

With sudden changes has come an increasing number of Malawians who are justifiably unhappy with what is being viewed as unreasonable, insensitive, intrusive and somewhat tyrannical carrot and stick demands. In social media and online articles, there have been references to “economic slavery”, “neo-colonialism”, “donor dictatorship”, “and predatory aid” and the new president has been called a “donor puppet”.

Others have taken a more pragmatic view, seeing the government’s acceptance of donor funding conditions as a choice between a rock and a hard place and not necessarily a punishment to poor Malawians. But one couldn’t help sense a grudging acquiescence, fuelled perhaps by desperation.

child-labour-South Carolina 1908
Child Labour, South Carolina, 1908

It has been correctly pointed out that most countries from which the donors originate have had their own uncertain histories where extreme violence and repressive policies/conditions (like fiefdoms, child / orphan labour, forced annexation of land, ban on alcohol, slavery, etc.) by monarchies, land owners, industrialists and other leaders, were implemented, adversely affecting minorities and millions others; that it has taken a painstakingly slow process and hundreds of years of activism and mistakes for desirable change to happen. That in some donor countries, age old problems (racism, social inequality and sexism) are still widespread. Yet certain donors appeared to be putting excessive pressure on countries such as Malawi to effect similar types of changes overnight, in a country that was barely fifty years old.

Some of those enraged also correctly point out that most donors do not fully appreciate Malawian culture and most will never be adversely affected (in some cases – they would in fact benefit) by the negative effects their demands have (or are likely to have) on the Malawian economy.

Naturally, one conclusion to draw from this is that Malawi could probably be governed much more effectively if it was neither influenced by donors nor their financial support; if it generated its own income and acted in the interests of Malawians. In any case, how does one justify implementing unpopular policies when it is the people who elect you to office (not the donors) who will suffer disproportionately as a result?

This view is not unique to Malawi alone; others far afield have expressed similar concerns against some of the institutions that make up the donor bloc citing examples of countries like Botswana, that have made admirable progress in economic development by ignoring the very same Machiavellian advice they were prescribed.

But putting aside this causative and divisive rhetoric for a moment, the elephant in the room has always been what policies should the Malawian government urgently implement to generate its own money, which it can spend according to the needs of its population, since tax revenue isn’t currently raising enough income?

In my view, the difficult in answering such a question is partly because there are many forms developmental policies could take, making the job of policy maker slightly difficult, so much so that the question then becomes, which policies within the ‘pool of viable policies’, can be implemented in a relatively short space of time, at a reasonable cost, and to achieve a significant economic return? A return that will see hundreds of jobs created, that will perpetually generate sufficient foreign currency for the government and private enterprise, which will ensure the longevity of the policies and sustainability / environmental preservation

Answering such a question is the first step towards finding an answer to the donor aid dependency problem. A further problem is the constraints current donors have placed on the Malawian government. But surely, if such constraints are disproportionately negatively affecting people’s lives, and have been known to have produced negative or undesirable results elsewhere; surely their effectiveness must be questioned?

So, taking a simplistic view, in terms of job creation, obviously in a nutshell you will require a skilled or unskilled workforce performing certain functions that will ultimately lead to the development of a product (such as Chilli Sauce, Blankets or Electric Scooter), or provision of a service (such as a Call Centre, Security or Carpet Cleaning) which can be marketed. Both types of organisations will depend on how much capital investment is available, availability of raw materials, the skillset on the ground and the size of the target market itself. But generally, the bigger your investment budget and the available skills pool, the more likely you will be able to employ large numbers of people to fulfil your function.

However, classical capitalist theory dictates that for an investment opportunity (other than one for purely charitable purposes) to be beneficial, the profit, or potential profit must be attractive enough to justify the initial investment (which for big projects can run into millions of dollars). So even though you may want to employ hundreds of people, you are constrained in that essentially, there must be a return on investment(ROI), otherwise there’s little point in investing if you will only be losing money.

But how much profit is enough profit?

For a developing economy which currently relies heavily on donor support to function, I’m inclined to apply and translate this hypothesis such that when the government awards contracts to foreign investors, the underlying assumptions as to the opportunity (at least from the government’s point of view) is that it is

…attractive enough to provide a reasonable profit and incentive to the investor, while ensuring that the investor’s ethical obligations to the country in terms of paying adequate amounts of tax, creating employment amongst the local population and development of infrastructure, are proportional to the actual (not perceived /anticipated) profit they generate from their investment

But such a viewpoint may not be shared by investors, and in any case what is the definition of a proportional corporate social responsibility? Spending $1 million annually on the local population in developmental initiatives? $10 million annually? Or $100 million?

Furthermore, it is a common practice for many international companies to pursue tax efficiency schemes, declaring losses where perhaps a profit could have been made, or offsetting a loss in one region with a profit in another, and if you inquire from any accountant worth their salt, you will be surprised to learn how creatively a profit can be ‘converted’ into a loss.

Admittedly, it’s a tricky balance since when attracting investment, a government also has to take note of what its neighbours (in this case Zambia, Zimbabwe, Tanzania and Mozambique) are offering in comparison to its own offering, because if an offer is not as competitive, an investor may end up basking in the neighbour’s back garden, instead of yours.

This state of play concentrates the bargaining power squarely in the hands of investors, and has been known to lead to the signing of grossly unfair contracts which disproportionately and exponentially favour the investor far more than it benefits the local population.

But as you will see below, this is an artificial problem that can be rectified, especially when the attractant bringing the investor to your country happens to be a natural resource. But only if personal agendas are set aside and officials begin to act in the country’s best interests.

In terms of Forex and the closely related issue of raising venture capital, there are no easy answers because for a country such as Malawi, there’s not much money floating around and you have to give others a good reason to want to invest in your country. But some things are more obvious than others.

So, in an industry such as oil extraction or mining, and considering that Malawi has comparatively fewer resources than other larger African countries, and few Malawian industrialists have the capital to invest in large projects, then instead of granting a tender to a foreign based company to establish mining operations (which may well be the easy way out), a wiser decision (at least in the long term) would be for the Malawian government itself to enter the business of mining/ oil extraction. In the information age in which we live in where one can easily recruit skilled professionals from all around the world, in industries as diverse as nuclear physics and aeronautics to marine science and nanotechnology, Malawi wouldn’t be universally refused assistance/ technical support in creating and running its own heavy industry. Assistance sought from the Arab Countries, South America and Asia would not be refused.

Therefore, in my view, the government would be best advised to create a planned economy firstly, before ushering in measures that work only in a market economy. By forming and co-own an organisation they would be doing just that. The state would hold between 48 – 51% equity, and offer the remaining stock to the public through a venture capitalist funding round. It is important to stress that this organisation will differ from “parastatals” in that it will not be governed, managed nor influenced by government/ ministries in any way. To have a greater chance of success it will need to be run like a private company, with enough checks and balances to prevent abuse.

Suppose it did this, issuing 4,900,000 (four million nine hundred thousand) shares at say between US$10US$17 per share, in respect of 49% of the shares; that alone would have a potential to raise between US$49 million to US$83 million three hundred thousand for the undertaking, a decent amount of capital.

Depending on the subscription levels to the stock and in order to achieve some kind of spread on ownership, no single person /family or undertaking (other than Malawian registered cooperatives) would be allowed to own more than 15% of the stock. In addition, nine of the biggest shareholders would be invited to become members of the board of directors, together with eleven other non-political appointments, appointed by government as its representatives, from across the country.

Once the stock goes live, the public would be given a 2 – 3 weeks advantage window to purchase shares before corporate entities were invited to buy. In order to expand the reach of such a scheme, publicity could be generated using various methods including online, local and foreign radio and TV advertising. There would be fund raising events at all Malawian Consulates across the world; using Malawian Associations in the diaspora; in Malawian faith gatherings (for example Churches) and celebratory gatherings in the diaspora, events at which the virtues of the scheme would be triumphed, and details of the opportunity, growth plans, brokers would be communicated; Mining companies (in particular VALE), African Development organisations (i.e. African Development Bank, or pro African organisations such as the Mo Ibrahim Foundation) and others would all be invited to invest. So would Sovereign Wealth or Pensions Funds respectively such as the Fundo Soberano do Brasil, Investment Corporation of Dubai, Abu Dhabi Investment Authority, Hassanna Investment Company of Saudi Arabia, South Africa’s Public Investment Corporation (PIC), Norwegian Government Pension Fund, China’s Africa Development Fund, Russian National Wealth Fund, Korea Investment Corporation, National Development Fund of Iran, Khazanah Nasional Berhad, Kuwait Investment Authority, State Capital Investment Corporation of Vietnam, Government of Singapore Investment Corporation Private Limited, Qatar Investment Authority  and several such investment houses. Alternatively, or additionally, the organisation could issue a standard IPO, although the 15% stock rule would still have to be enforced.

Admittedly, setting up such an organisation would be a daunting task, requiring an experienced, dedicated, progressive, well-informed and energetic team that has had exposure to fresh ideas that have worked elsewhere around the world. However, as you will see below, the net benefit of such an organisation to Malawi (or indeed any African country struggling with the development aid problem) would far outweigh initial headaches (and costs), and would have a much higher chance of ending dependency on donor aid than most endeavours that are currently taking place.

There would be many concerns and hurdles, and setting up would not be easy. But by far the largest concern would probably be that of accountability, in that strict money controls would need to be implemented to ensure that the capital raised, and revenue generated would be used for growth of the organisation and social purposes such as revamping hospitals, buying essential medicines, building infrastructure developmental, and not for personal gain. To this effect, it would be mandatory for all senior officials, including those with access to the organisation’s finances to declare all their assets before taking up office, and to be independently audited bi-annually by external and independent auditors. No executive would be allowed to sign for transfer of funds of more than $15,000, as decisions on transfer of funds over $15,000 would be made collectively by the senior management team. Further, the government would need to issue a guarantee to secure against each investment in the event of fraud.

In addition, from the onset, an organisational culture of nurture (complete with an Environmental Preservation Programme and a Corporate Social Responsibility programme which would include volunteering to charities, schools, hospitals and suchlike) would need to be established to nail this message that employees of the organisation are hired to serve.

To safeguard the longevity of the organisation, it would also be essential that the company be run as a meritocracy, independently of the government or any other political institutions. This would call for a military style discipline in that while the organisation would be answerable only to its management board, it would also be answerable to a non-executive board of directors made up of officers from nine of the largest shareholders and eleven non-ministerial, non-political state representatives from across the country. Members of the non-executive board would have a fixed, non-extensible tenure of 2 years, and its management board would be contracted to a thrice renewable 4 year contract. Specialist advice would be sought from members of management boards of companies in other parts of the world, such as in Brazil for example, where their state run enterprises some of whom have now been nationalised, have proved to be commercially successful.

Addressing Red Tape

Ask any entrepreneur who has worked in Malawi and they’ll tell you that the bureaucracy is ridiculous. There are delays and lengthy procedures over everything. Delays in incorporation, delays in getting consent or a signature over one aspect or another, delays in getting import licenses, delays unless you pay a bribe, delays! In buying land and getting the purchase officiated, delays imbedded deep in the system.

The effect of red tape is that it tarnishes the country’s reputation, hampers business operations, repels investment and causes frustrations to investors who would otherwise help fix our economy.

So the government would be best advised to introduce a sui generis instrument that transformed the way businesses incorporate in Malawi by allowing an accelerated incorporation of a business within a week. Everything regarding incorporation, taxation and issues such as exemptions on capital equipment would be dealt with by a dedicated team occupying a central computerised system, firstly located in each of the major cities, and subsequently gradually rolled out across the country. The system would allow an entrepreneur to make an appointment, pay a fee, show all the required documents, get the incorporation documents and exemption certificates printed that same day, and if he needs land, show proof of purchase and get a bill of rights to the land by the end of the week. By the next week he can open a bank account, collect his machinery from customs and begin employing locals and commence operations for the building of his factory, having secured everything he required within a week.

The effect of such speedy processing times would be phenomenal and would greatly stimulate Malawi’s industry. In any case, if we look at the small country of Singapore (whose size is just larger than the size of Lilongwe), it’s no surprise that it is ranked as being the easiest place to do business in the world because according to a Report by the accountants Grant Thornton, it also has the least red-tape. In fact Singapore is so successful in this regard, it has been voted as the easiest country to do business in 7 times

To cement a culture of nurture, the organisation’s chief executive would be answerable to Parliament, and would be under an obligation to appear before a Parliamentary committee, once a year, to present an annual report on the organisations progress, direction, challenges and dealings.

Since the organisation’s aim would be primarily to develop Malawi’s economy, its structure, aims, functions, operations and investments and such like would need to be clearly articulated from the outset. It would have to maintain total impartiality in politics and there would be a need for strict checks and balances, and stringent hiring procedures, to safeguard for example against political influence, tribalism, regionalism, nepotism, ageism, or any other cancerous bias common in African countries.

A long–term management plan (at least > 10 years) that would include growth forecasts and a diversification plan to spread financial risk would be implemented, mapping the organisations goals and ambitions and providing a back-up plan. Fraud, mismanagement and corruption would be dealt with swiftly, uncompromisingly and decisively, and without political interference. In the event of a particularly acute crisis, or mismanagement, the CEO can be summoned and questioned before parliament, although he can only be forced to resign, if his position becomes untenable, by a two thirds majority vote of both its management board and Non-executive board of directors.

Such an approach would be crucial in terms of efficiency, transparency and would help establish investor confidence. It would also avoid some of the mistakes and problems documented elsewhere, for example those that have plagued Malawian parastatals or South African state owned enterprises [see here and here]

Further, if such an organisation does not lay a clean, responsible and credible example, and does not pre-emptively act against known inefficiencies common in parastatals, prospective investors are unlikely to purchase shares in any subsequent offerings under any similar state co-owned corporations. Already there are credible reports that suggest that the performance of State owned enterprises can be significantly improved, leading to profitable organisations [See Arief Budiman, Diaan-Yi Lin, and Seelan Singham , 2009, Mckinsey Quarterly here] In any case, with the benefit of hindsight, such organisations can be managed with the knowledge and expertise that will ensure that they steer clear of the ‘plagues‘ that thwarted State run companies of the 1970’s to 1990’s.

tractor

Thus, if Malawi had established four or five such corporations, then once the companies were on course to declare a profit, and while adopting a strict cost control strategy, the funds would be sufficient to purchase capital equipment (oil drilling equipment, mining equipment, agricultural equipment [ploughers, combine harvesters, planters, trucks, pumps, generators] , pharmaceutical equipment, manufacturing equipment [for industries including fertiliser making, cement making,  steel refinery, juice extraction, sugar processing, motor vehicle / railway carriage assembly, petroleum refinery] and any other necessary raw materials or equipment for industries the organisation was considering to diversify into.

The funds would be sufficient for the development and upgrade of infrastructure such as flats, houses, shops, a hospital, a police station, schools, a post office, banks, an airfield, libraries, markets, sporting and health facilities and roads to cater for the new workforce that would be required to work in the new mines / factories, all of which would create massive employment and would stimulate the Malawian economy like never before.

greenway_poultry

underwater

It would be sufficient to cover investment in alternative sources of energy such as wind, solar, tidal wave and novel hydro/ underwater turbines (here and here) power generation, to ensure that the new extraction / manufacturing facilities (and subsequently the new towns or settlements) are as environmentally friendly as possible, generating as much of their own energy as possible. It would be sufficient to cover employment costs for the organisation, including hundreds of miners and salaries of specialists from around the world to provide training and assistance in construction of the mines/ factories, conducting geological scans, using, servicing and maintenance of equipment, etc.

To aid in understanding the workings of such an organisation, say one focussed on mining/ oil extraction, a hypothetical picture of its staff and annual financial commitment may be most helpful. Thus, I’m inclined to include this rough, sketchy and extremely simplified draft of what the financial commitment at its very bare bones would look like. Obviously, the figures although lower in comparison to the levels in the developed world, can be adjusted accordingly in view of national salary levels / trends, performance targets, generated revenue, market forces (food / fuel prices and inflation, etc.) and to attract some of the best talent to the organisation [Click here: Annual Costs]

Note that in the subsequent years after the first, the capital equipment or buildings budget will be significantly lower, since funds for infrastructure will already have been allocated and costs such as heavy machinery or motor vehicles maintenance will be minimal in comparison. Thus, while the figures in the annual costs may at first sight appear indulgent for a small African economy, its structure would be designed with hindsight regarding diversification and future growth into other industries in national and international markets.

If the company generated US$300 million in sales of its ore in its first year of full operation (let’s assume this occurs after total sales at the end of the 2nd year from commencement), then deducting the operational costs [US$26,903,000(1st year); $8.9 million (2nd year: this is estimated by deducting first fiscal year costs minus the sum of contingency, infrastructure & capital equipment costs – giving $35.8 million) leaves US$264 million operating profit.  [Note that these calculations do not take into account any “losses” carried forward from the previous year(s) before full operation, nor does it fully consider that employees would not be hired all at once]. For the purposes of this article, for simplicity and assuming there are no tax incentives, if we levy a flat Corporation Tax rate of 30% (US$79.26 million), the net profit becomes be US$184.74million.

Thus, at 51% government ownership, and subject to other considerations/ deductions, the government % share of the profit would be a not insubstantial US$94.2 million, roughly about 7% of the 2012 Malawi National budget.

But even if the management board decided that only two thirds of this $184.74 million (~ $123.16 million) would be paid out to investors in dividends in the third year, while one third would be kept as reserves (a part of which would be re-invested into developmental programmes, acquisitions, growth / expansion, operating capital, shares buy-back programmes and other purposes), 51% of $123.15 million is still a substantial US$62.8 million, which would be a considerable contribution to the Malawian government over and above the US$79.26 million already paid in corporation tax.  There is then income tax paid by the employees, which would further generate tax revenue for the government.

And Investors would make a fortune. Since 4.9 million shares for 49% means that 1% stake in the business is equivalent to 100,000 shares, then at US$17 per share, it means that 1% stake is worth $1.7 million in investment. Thus, if $123.16 million of the profit will be paid in dividends, then 49% would be worth $60.34 million, valuing each percentage (1%) at $1.231million.  Theoretically, this means that if the company maintains or improves its performance for the next few years, then within 3 – 6 years of making an investment, an investor would have recouped or even doubled all of their initial investment in dividends.

But suppose instead of US$300 million in its first year of full operation, only half, or even a quarter is generated in sales. Even then, taking a similar approach, the organisation could still be managed to remain profitable.

And what if instead of the 4.9 million shares, only 2 million shares are issued at $17 – $19 per share in the funding round, raising between $34 million – $38 million. I believe with some creative adjustments and a lean approach (for example, ‘thirding’ / halving the salaries of the top quartile, reducing size of middle management, and salaries of middle management by say $4k -$7k; reducing the expenditure on capital goods & buildings), the venture would arguably still be commercially viable, more so because after the first year, the capital expenditure (buildings, infrastructure, Plant) would be much less.

Obviously, in practice there would be far many more considerations, and the figures would probably not look as optimistic, but the above provides a plausible and realistic picture of the financial commitment and nature of such an organisation. With such a framework, and depending on the amount of ore deposits, the miner workforce can be increased, short-term internships provided to hundreds or even thousands of low income earners from across the country, know-how sought from international experts and the company could still generate a profit, meet its tax obligations, and issue an attractive dividend.

Contrast this to the common arrangement where the government only owns few or no shares in its country’s largest heavy industry, what you will find is that corporation tax revenues or dividends are often miniscule in comparison; disproportionate by any scale, and the government loses out on hundreds of millions of dollars, just another repetition, dare I say, of the age old adage that everybody except Africans themselves benefit from Africa’s mineral wealth.

And you see it everywhere; recently a Fortune Global 500 Italian oil company, ENI (which is the largest industrial company in Italy with 30% government ownership) has acquired a 70% shareholding for Natural Gas reserves off the coast of Mozambique, one of the biggest finds of its kind with potential for over $15 billion. 

Think about it, with the expertise Mozambique and Southern Africa currently has, was it necessary to give away such a large stake to a rich European company when your own country is littered with massive problems caused by poverty? Doesn’t this clearly add to the imbalance of trade between Africa and Europe? And even if the companies that will develop the reserves are to invest $1 billion.  Yet if $10 billion (which is 70% of $15 billion) is the net benefit to the Italian company, say over 15 years, clearly Mozambique will not have gained proportionally?

Or would it have done so? How?

In any case, when was the last time you heard an African based mining company had been awarded a 70% interest /contract in North America or off the coast of Italy?

In my view such decision making from African leaders showed incompetence and left much to be desired. When European legislators had used every trick in the book to protect their markets, it was wasteful, short-sighted and negligent and couldn’t possibly represent the true position of the majority of Mozambicans. Mozambique, which faces similar problems as Malawi needed the benefit of such resources a lot more than ENI, whose 2012 3rd quarter profits (4th Quarter to be announced in February 2013) stood at €14.80 billion, a 13.9% increase from 2011.[See source here]

The Younger generation ought to take note of such crippling anomalies and rectify them when their turn in public office arrives because this trend where the net movement of resources is only from South to North, or South to West, is precisely what got Africa into a mess in the first place. In particular, according to British historian Dr. Hakim Adi,

 “From the middle of the 15th century, Africa entered into a unique relationship with Europe that led to the devastation and depopulation of Africa, but contributed to the wealth and development of Europe…..”

He follows to state that:-

“The forced removal of up to 25 million people from the continent obviously had a major effect on the growth of the population in Africa. It is now estimated that in the period from 1500 to 1900, the population of Africa remained stagnant or declined. Africa was the only continent to be affected in this way….was a major factor leading to its economic underdevelopment.”

[See here]

So, if things have indeed changed since the exploitative days of slavery, wouldn’t you think that the economic imbalances that currently exist would be squarely addressed, decisively? That not only would African leaders  be alert in negotiations and minimally demand a proportional shares of their resources, but western business leaders would have policies in place to ensure that a larger, or atleast equal benefit of natural resources go to the country that owns them?

This is probably one of the drivers which influenced South Africa to finally open its first state owned mine. The implications of such must never be understated. For a start, how much potential revenue in taxes and dividends has the South Africa’s government lost in income from diamonds and gold since the end of apartheid as a result of lack of ownership of a proportional share of the country’s mining industry?  Funds which because of private ownership were wired out of the country, or concentrated in the control of a small rich minority, instead of being used for developmental purposes within the country, lifting millions of ordinary South Africans out of poverty, building quality hospitals, developing medicines and raising the standard of the poorest and such like.

By owning a majority stake in most of its country’s major industry, and having an informed management strategy, the net benefit from the proceeds of its natural resources can be significantly increased.

This is what Park Chung-hee (the South Korean general who is credited with the industrialisation and rapid economic growth of South Korea) practiced [see Export-oriented Industrialization here]. While he had a darker side to him, and while there were other contributory factors at play (for example American money – Chung-hee’s support of the US in the Vietnam war is said to have attracted substantial financial rewards to the tune of $3 billion, between 1964 to 1972, in exchange for sending 300,000 Korean soldiers to Vietnam), his policies including creation of economic agencies, ownership of banks, soliciting technology and investment from Japan, encouraging the creation of efficient but cheap products and expanding Korean exports helped create and strengthen the industry that now defines South Korea.

It’s what Botswana has done, whereby Debswana, their sole mining company is 50% owned by Botswana and 50% by DeBeers. [See recent Debswana revenues here]

These types of policies are especially important where private individuals struggle to tap into capital markets, and while there has been criticisms against them, even countries such as the US, and the UK developed partly on the back of such policies.

In discussions with scores of western trained colleagues (most of whom are African – many now working in Africa, including Malawi), there were many different views exchanged. Among them were concerns that certain donor officials (not only in Malawi) were discouraging African governments from ownership of industry (in one instance advising the Malawian government not to buy tractors for agriculture “because it was bad for the soil”). Such thinking was unhelpful, as highlighted by one Rick Rowden on Foreign Policy.com where he states that:

Today many African countries need to use industrial policies, such as temporary trade protection, subsidized credit, and publically supported R&D with technology and innovation policies, if they are ever to get their manufacturing sectors off the ground. This is true for all the same reasons that it was true for the U.K. and other nations that have industrialized successfully. According to today’s ideology of free trade and free markets, however, many of these key policies are condemned as “bad government intervention.” Bilateral and multilateral aid donors advise against them (and structure loan conditions accordingly). WTO agreements and new regional free trade agreements (FTAs), as well as bilateral investment treaties (BITs) between rich and poor countries, frequently outlaw them.

[See here]

When most western countries (from whom the donors originate) had phases of Planned Economies before adopting Market Economies, how honest was advice against a planned economy? In any case which industrialised country still uses hoes or cattle ploughers for agriculture? If private industry is generally unable to raise sufficient capital for purchasing of equipment which would provide benefits and efficiencies in farming, how can farming methods improve and the quality and quantity of the yield increase?

This point is worth exploring in a bit more detail. If it is the case that such advice was provided, how honest was it when it was clearly the case that raising capital for large projects which would involve outsourcing technical functions, buying expensive machinery or consulting a considerable number of foreign specialists, was beyond even the wealthiest entrepreneur in Malawi? And when no entrepreneur was willing to risk putting their own money into such a venture, without an assurance from the government that they would be awarded at least a contract that would ensure that they recouped their money back?

Further, in terms of credibility and securing against an investment, the government can create credibility with relative ease and would be able to secure against an investment, whereas private entities can sometimes be viewed more circumspectly, and wouldn’t always be able to secure against an investment.

So, it was again left to foreign investors to develop heavy industries, marginalising local entrepreneurs, who must settle for employee. And as most people already know, many corporations are masters at “legal” tax avoidance, using tax incentives, off shore companies, tax-free zones and other sophisticated schemes to deprive their government coffers of millions or even billions of dollars. It happens everywhere, even in the UK [see here and here]

But unlike the UK, where there are hundreds upon hundreds of multimillion pound revenue generating companies, such that even in the presence of widespread tax avoidance schemes, Her Majesty’s Revenue and Customs (HMRC) is still able to collect hundreds of billions of pounds in Tax every year [see this source, in particular page 7] that lists 2010 -2011 collections to be £468.9 billion, most poor countries such as Malawi had no such luxuries. With few multinationals, advice against government co-owned industry was unhelpful, discriminatory and suppressive to say the least.

And if you look at the US, similar patterns emerge in that the state collects huge chunks of incomes from big business -simply because there is a lot of large industry!

Image source: Washington Post
Image source: Washington Post

Therefore, if the Malawian government was reluctant or under duress not to own industry, yet Malawian businessmen were unable to overcome financial barriers to entry, and foreign owned corporations paid miniscule taxes, what hope of creating sustainable economies was there? Wouldn’t this create or perpetuate the rather familiar situation in which resources of very poor countries were developed predominantly by foreign corporations most of whom paid very little taxes, and did very little towards lifting the standards of life of the locals? Doesn’t that fact in itself perpetuate a donor aid dependency?

In my view, the Malawian government, and other Africans states would be best advised to ignore such misleading advice and begin to invest into heavy industry that will create an export economy, as other countries have done in the past because a planned economy would greatly benefit Malawi.

Sustainability

Malawi, like many African countries, gets plenty of sunlight, more so by virtue of its equatorial proximity. So, imagine if every roof, whether iron sheets, tiled or thatched had a solar panel on it.  Would there be power cuts or shortages every other week? Further, how much fuel would that save? And how many trees would be saved as a result? And on a similar theme, what if every household planted one tree a year, for example in the fashion of say the Youth Week programme of the Hastings Banda days, and following lightly in the footsteps of the Nobel Peace Prize laureate Wangari Maathai’s greenbelt movement. Having the benefit of a fresh water lake, if Malawi can strive to become the greenest country in Africa, literally and in terms of greenhouse gases emissions, that factor in itself would inevitably stimulate biodiversity within our wildlife ecosystems and would most certainly improve our tourist industry, bringing in much more Forex into the country [See lessons from Costa Rica here]. It would also carve unity and create a sense of togetherness towards a common purpose.

In my view, a government owned corporation such as suggested here would be the perfect opportunity to implement environmentally friendly projects that have worked elsewhere [one example here], including an extensive national tree planting programme, creation of additional forests and wildlife reserves, importing additional species of animals from other countries(e.g. the Congo basin and Madagascar) to increase our biodiversity and such like. In building infrastructure, and pending cost-benefit analyses, the organisation would adopt measures, practices and technology adopted by “green cities” in other parts of the world such as in Brazil, Sweden, Canada and Qatar. [See Turning Deserts into Forests here]. In any case, doing so would likely help combat the challenges brought about by climate change. In fact according to a World Bank Report tackling climate change is linked to ending global poverty.

A further point worth mentioning and that is somewhat linked to the dependency problem is the role of Education. There are many educated people in Malawi, loads! Every single day, whether in the newspaper, on the radio, or amongst friends, you will hear a reference to some Dr. or Professor, or somebody who has a Masters degree in some field. Many of them are foreign educated but if you investigate further, you quickly find that very few of these “intellectuals” have been given a real challenge that will stretch them mentally and utilise their many skills. Many settle within the boisterous frustrations of working as university lecturers, going months on end without pay; Or receiving breadcrumbs in one NGO or another, undertaking dead roles, and led by unresponsive, short-sighted, fat-cat bosses. If not they are in regressive government departments doing clerical jobs for which they are overqualified; or they are working as consultants, underutilised. Else, they are in farming or in some other function, but because of lack of sufficient capital, still heavily underutilised. In contrast, and as if a mockery, the old guard (or neopatrimonials known respectfully as Achikulire) despite having little formal education, and who achieved notoriety in business or politics under the one party system or as a result of their affiliation/relation to a minister or president, are still doing relatively better, and dominate some industries. Yet the Malawian government appears powerless to help these educated individuals, and in the words of a friend, “they are left to slowly rot away and become irrelevant”. What then was the purpose of all the highly advanced training, the PhD’s and Masters? Is this not waste? How will Malawi develop if those who have the skills are not utilised and supported to practice their vocations? Most of these people have years of experience, and their activities and contacts both on the ground in Malawi and abroad have given them a unique depth of understanding as to why countries develop and the root problems plaguing Malawi’s economy. Yet the furthest they vent their knowledge is at parties, amongst friends, or at the bottle store, amongst strangers.

In my vision for Malawi, foreign educational institutions such as Universities will play a pivotal role in assisting to end aid dependency. So, if 100 Universities across the world were “compelled” to loan to 200 of the entrepreneurial of these professionals $35,000 each in Venture Capital funding, I find it extremely difficult to accept that, with the knowledge, exposure to progressive ideas, with their experience and contacts (be it other Africans in Ghana, Kenya, etc., or with former classmates in Europe, the US, Asia or Australasia, etc.) that such capital wouldn’t enable a majority of the recipients to create sustainable business models on the ground.

It wouldn’t be a free lunch. There would be a need to comply with Financial Services regulations regarding lending by Educational Institutions. For each applicant, a business plan would need to be submitted for vetting and fraud checks including credit checks to ensure that only the genuine applicants were assisted. There would be a need for training and business management support to ensure that the entrepreneurs are constantly being equipped with skills that could be of use in their businesses. Minimally, it would allow those ideas which had the best potential, low entry barriers, possibly a successful pilot run, and a big enough market for a viable sustainable model to be created, to be funded.

To make things a bit more interesting, suppose those universities included a clause in its loan agreements that stipulated that if the initial investment is doubled, excluding costs, then as soon as the initial loan is repaid, say within a space of 3-5 years, the borrower would be entitled to another loan, this time twice the amount ($70,000) and so on.  In my view, such a scheme would be a huge incentive to innovation that would challenge Malawi’s underutilised entrepreneurs and would have a tangible and measurable impact within a short period of time because the entrepreneurs would have access to essential capital and Forex, which most currently struggle to find. Such resources which would enable them to buy equipment and employ a couple of people to assist them roll-out their business ideas.

The Universities would also benefit in other non-obvious ways, for example, Business School students would have an opportunity to be seconded on short term internships (a couple of weeks to several months) in these ventures to gain experience, transfer additional skills and arguably contribute to these companies.  And those that prove to be commercial successes could even offer these students full-time employment.

Could wind turbines be an alternative source of power?
Could wind turbines be an alternative source of power?

Diversification

Because of the resources at its disposal, a national corporation can seamlessly diversify into other industries and branch out to create other companies. For example it could invest in Tourism, partnering with local tourism providers to establish high quality standards and / or cooperatives; it could invest in Commercial Farming (everything from Soya beans, Poultry, Bee keeping to fish, cattle / pig farming, all on a large scale); It could dive into Telecommunications; Information Technology outsourcing(from graphic design and call centres to cloud networks + unified systems); Manufacturing (foodstuffs, alcohol, furniture, fertilizer, cement, glass, plastics products, cosmetics and such like.); Assembly (computers & electronics, bus & rail carriages, motorcycles and such like.); Pharmaceuticals; Education (creation of new learning institutions/ universities with research specialisations in medicine, engineering, agricultural technology, business, etc.); Recycling (metal, plastics, wood,  paper, carbon-composites, etc.); Shipping – an International Import and Export / Logistics business; Banking & Insurance; or even investing in the development of Real Estate (flats and houses, hotels and world class business centres).

Much of the systems and machinery would already be in place, as would be staff and a management. In essence the first corporations would act as a training ground to equip employees with transferrable skills that are essential in the subsequent corporations. Once issues such as demand, market/ viability analyses, type of crop / animal, vets and vaccinations, pesticides, nature and cost of new machinery, logistics, profit margins, import / export tariffs, procedures and legal compliance, specialists, etc. in each of the identified opportunities had been determined, “satellite” management boards would be hired to independently run the spin-offs as independent national corporations in their own right. This also means that shares would be issued in a similar manner as above and the whole cycle repeated all over again.

So as an example, Blueberries cultivated on a commercial scale in South America (notably Argentina + Chile) find their way to England, and are subsequently used in everything from fruit and desserts to juices and pet food. In the UK alone combined retail sales value for strawberries, raspberries, blueberries and blackberries are close to £700 million [see here]

Similarly, the US imports Meat and poultry from New Zealand. According to this source ( Office of the US Trade Representative):

The five largest import categories in 2011 were: Meat (frozen beef) ($906 million), Albumins, Modified Starch and Glue (mostly caseins) ($312 million), Dairy, Eggs, and Honey (milk protein concentrate) ($286 million), Beverages (wine) ($224 million), and Machinery ($182 million)…”

According to a ACDI/VOCA report (source: Value Chain Assessment: Indonesia Cocoa , by Henry Panlibuton & Maggie Meyer, June 2004), Cocoa Beans exports from Indonesia are currently valued at approximately $600-700 million per year, however there have been concerns regarding the quality of the beans and a much documented fall in production in recent years which could mean an opportunity for a savvy new entrant??

Similarly, the US imports raw materials, foodstuff, fish and food grains from Thailand, and in 2011 they included Prepared Meat, Fish (shrimp and tuna) (worth $1.4 billion), … Agricultural products from Thailand to the US totalled $2.6 billion in 2011, the 8th largest supplier of Agricultural imports, and included: rubber and allied products ($1.0 billion), processed fruit and vegetables ($468 million), and rice ($419 million) [See here]

According to 2009 statistics from Economy Watch, the Netherlands imported a total volume of $358.9 billion worth of goods. This may be a market worth exploring, in terms of what do they need, where are they currently buying it and why, what can we supply them, what are they short of which we can grow, what are we already supplying, etc. In any case, South Africa exported over $700 million worth of goods to the Netherlands [Source Mail & Guardian] and in 2009 the Netherlands imported $290 million worth of Cocoa from Nigeria [See The Observatory of Economic Complexity] all of which may be indicative of opportunities worth exploring in greater detail?

According to this source, the US imported over $1.4 billion worth of fruit and vegetable juices from the world in 2010. The global market for fruit and vegetable juices is forecast to reach 64.46 billion litres by the year 2015 [See here].

With all the fruit trees (notably mango trees) in Malawi, and considering that Zimbabwe is no longer a big producer of fruit that it were in the eighties and nineties, Malawi should be churning out hundreds of millions of litres of fruit juice each year.

In addition, Sugar exports from Australia are worth between $1.5 billion to $2.5 billion [See here]

Think, Dwangwa Sugar Corporation, which is only 8% government owned. An investment into two or three large government co-owned Sugar plantations in which the government held a majority stake was the most obvious thing to do. If availability of land were a problem, the corporation could “rent” unused land south of the border and develop such large plantations in Mozambique, Angola, Botswana, Zimbabwe, or even across the Mozambique Channel in Madagascar, and negotiate fee sharing arrangements with the governments of those countries.

Further, it could do a lot more; the Dangote Group for example was built partly on sugar products, which probably shows that there is still a large market for processed sugar products across Africa. As a sugar producer, Malawi shouldn’t have to import processed sugar, coffee or tea products from abroad, let alone have shortages in times of crisis. These must be processed in Malawi, marketed extensively and exported. And in austere times such as is currently the case, the buyer is more likely to buy on price.

According to the Bureau of International Recycling, the global recycling industry is worth at least $200 billion. In 2010 alone, the US generated $30 billion from export of commodity grade scrap products. [see here] Surely, this has got to be a market worth exploring in more detail?

According to Vinexpo Chairman Xavier de Eizaguirre, the global Wine industry is worth at least $170 billion. And is growing rapidly, largely driven by consumption in China [See here] Such is the growth that not only have South American countries like Chile and Argentina become prominent grape growers, even the South of England which previously wasn’t considered to have the ideal climate is becoming a vineyard region. [For more information see here].

According to this link, in 2008, footwear industry exports from Vietnam were worth $3.16 billion.

With a government co-owned corporation, it will be possible to bid for projects internationally, and possibly even acquire other potentially profitable opportunities elsewhere. You see it with Vale which began as government owned and has grown from a national mining company into a behemoth which is now the second largest mining company in the world, with acquisitions in Canada, Japan and other parts of the world. Surely, there are some practical lessons Malawian industry can learn from such companies?

A further point is that Malawians must learn to reject deals or proposals that are bad for Malawi in the long run. In the case of mining, this is metal ore we are dealing with so if someone doesn’t want to buy it or if the price they are offering is too little (or insulting) – you can always refuse to sell it to them. And store the ore. Tomorrow another customer will show up, and in the case of Uranium, there are many customers: Iran, India, Brazil, China, the US, and many others, all with huge energy needs. So, as an example, if Iran wanted to buy our uranium in exchange for petroleum, you couldn’t get a better deal. In any case, many countries including the EU are still trading with Iran, despite trade sanctions, with EU imports from Iran in 2011 amounting to ~€15.8 billion.

In conclusion, the above presents only a tiny picture of the global opportunities such an organisation could target.  However, I believe that with a considered vision, fresh thinking, extremely careful planning, a deliberate and calculated risk, a progressive and sacrificial team, and with a stringent management strategy, and an organisational culture focussing on integrity, service and nurture, and by referencing to what has borne positive fruits elsewhere, it is possible to create and harness three or four such home grown brands into remarkable and profitable multi-billion dollar conglomerates.

If run responsibly, such national corporations would be the pride of Malawi, and would most definitely propel our country’s economy into the 21st Century, helping Malawians enjoy the sort of financial freedom enjoyed by countries such as Botswana, Mexico, Brazil, Kenya, Ghana, Malaysia, South Korea, Venezuela, Thailand and China respectively, some of whose industry began as state owned, and many of whom still have state owned industry. It would help bridge income disparities and would raise the standards of living of hundreds of thousands of low income families, equipping workers with transferrable skills in the process. Its environmental credentials would be attractive to foreign investors and its social policies would help with healthcare initiatives, tertiary training and be a model for responsible corporate governance.  Most importantly, it would provide ordinary Malawians with a means of realising a proportional benefit in their resources.

For Malawi and several other African countries facing this aid dilemma, the resources, expertise and answers are arguably already available; the only ingredient yet to be added to this equation is the exercise of a determined, concerted, well-informed and independent political will. But in the event that such highly desirable political will was not forthcoming, for whatsoever reason, individuals and Malawian businesses must act quickly to organise themselves and pool resources together to form ‘cooperatives’, for example as was the case with the group that in 2012 bought biodiesel equipment from the US.

The collective pooling together of resources would arguably allow the cooperatives to begin targeting national and international opportunities such as those outlined above, because unless the Malawian economy can become self-sufficient and industrialised, we will forever struggle to maintain true independence on the global arena.

And it’s not about embarking on some heroic stunt. It’s the things that matter: – where our medicines and consumables come from and whether we can save money by manufacturing a few ourselves? Whether we can create savings on the source of our electricity? The quality of healthcare(access to a clean hospital bed + medicines; family planning being standard); if every child has an access to a good level of education, if the homeless and hungry can be housed and fed, and the jobless provided with training and a job(even if it meant part time job, so long as they can be resourceful), if our lakes, national parks and game reserves are protected and enhanced; corruption thwarted mercilessly, if our industry is developed so that (i) it caters for most of our basic needs (ii) generates sufficient Forex (for fuel and more sustainable + eco-friendly industry, etc.) to enable us to tap into the global economy, if Malawi can strive to construct world class facilities to attract international business, reduce crime and increase security (to say 1970’s levels) across the country for international visitors to feel safe; if civil society  is resourced to educate against deforestation and offer alternative and sustainable sources of energy, if the priorities of a majority of our politicians’ can shift from being archetypically self-centred, to being servants of the state, paid similar salaries as doctors, if our mentality can change from what J F Kennedy referred to as what my country will do for me, to what I will do for my country, the pillars of economic development will have been laid.

Chinese propaganda poster, April 1965, it reads: “Fully engage in the movement to increase production and to practice economy to set off a new upsurge in industrial production” via http://chineseposters.net
Chinese propaganda poster, April 1965, it reads: “Fully engage in the movement to increase production and to practice economy to set off a new upsurge in industrial production” via chineseposters.net

In any case, if countries like China, Brazil or South Korea stuck to inefficient and archaic agricultural methods or core industries by which they were defined 60 years ago, do you think they would have developed at the pace they have? Taking the example of China, despite the controversy with an artificially maintained currency, cheap labour and poor working conditions [which is not unique to China as even industrialised countries had a phase of poor working conditions], has their sacrificial spirit and hard work not paid off, benefitting millions of Chinese?

I urge every Malawian who reads this to carefully consider these observations and other inspirational works ( for exa ple Henry Kachaje’s Imagine an economically Independent Malawi). Each one of us needs to play a part in terminating this toxic debt cycle that has enslaved our country for decades.

                                  “You cannot pick up a pebble with one finger.” – Malawian proverb

Let us graft together and transform Malawi for the better. We may not be able to do it as individuals, it will not be easy, some people will be against it, but together, united, irrespective of tribe, religion, customs, colour of skin, irrespective of language, irrespective of social status, it is possible to make real progress; Malawians shouldn’t accept mediocrity, hand-outs and unending hardship as standard.

Not every problem can be solved overnight, and while mistakes WILL be made, yet in seeking to develop Malawi (in substance, not rhetoric), if we collectively, sacrificially and selflessly begin structured meaningful projects, hand in hand with willing trade partners, we can achieve progress that has never been seen previously. Progress mapped not by foreign aid organisations or vested interests that have neither sympathy for nor responsibility towards the poorest Malawians; instead, progress which terminates aid dependency once and for all.

[In the next and final part, I will outline examples as to how other countries and businesses have specifically implemented planned and strategic Economic policies, and lived to reap the benefits]

(C) 2012 -2013 Sangwani Nkhwazi