Thoughts on the sale of Malawi Savings Bank (MSB) , and more

The trouble with capitalists (as with politicians) is that they think only about themselves. Until after things begin to go wrong, after which they still think only about themselves. Need proof of that?  What happened in the 2008-2009 financial crash?

Dont get me wrong, I’m pro Capitalism. Totally. May not entirely be proud of it, but I am pro ‘responsible Capitalism’, for lack of a better term. My line of work is made possible definitely only because of Capitalism. And yes, I enjoy what I do.

But when your only motivation and greatest priority is making money; and everything else including other human beings come second in the list of priorities, then it is more likely than not that you have lost the plot; that you need salvation.

But without digressing too much, why is the sale of MSB the wrong decision?

Well, firstly assets fetch more when sold at the peak of their value. When they are sparkling and in pristine condition; for companies, it’s when business is going well and the profits are pouring in in bucket-loads. During such times, the sale of a business can command serious financial digits and can really bring value to their owners. But when the business is  loan-laden with toxic debts it issued (some alleged to be politically influenced backdoor deals), when a bank is infested with inefficiency, corruption or dodgy deals, when there are some financial mishaps, you can’t possibly expect to get value for money, or for the bank to be sold for the real value it is worth. Had the management persevered and got its act together before selling, had the bank liquidated a significant part of the debts on its books, it’s likely that it could have fetched more on the market.

Think of it like selling your old car (which is partly owned by your friend who doesn’t want to sell it) when the windscreen has a chip in it, when the paint work needs improving, when one tyre is flat, and look! – .there’s a decomposing rat on the backseat..yuck!

Lets just say your car would have fetched a better price if you first reached an agreement with your friend, and fixed it; if you got it cleaned, …kuyikwecha bobo, before attempting to sell it.

Secondly, you can’t sell what you do not officially own. You can’t sell what you have no authority to sell. Imagine if I showed up to a potential investor and claimed that I owned the land on which the new stadium in Lilongwe is being built. Not only would my claims be laughable (and could possibly land me a stint in jail), but any foolish investor who dared believe such folly, without independent verification, would find themselves in the undesirable position of having to explain a useless contract – a piece of paper that would be completely unenforceable.

So, being state-owned, MSB is essentially a chattel held by the state in trust on behalf of the people. It is Malawians who should hold the key to its fate, they are the ones who can legitimately decide on whether to sell it or not. Malawians and not only the government of Malawi.

If that’s not currently the case, then that’s how it should be, for any state-owned property because otherwise there is a danger that the executive could make decisions befitting more of a dictator than a democratically elected president; that the legislature could act without consulting the people they represent.

Which is a problematic state of play since by selling the bank, the assumption is that the government is acting in the interests of Malawians – and has their blessing in undertaking such actions ; yet from the anti-sale demonstrations and all the opposition to the sale, it would be perfectly clear to anybody who was paying attention that there are many thousands, possibly hundreds of thousands, or even millions of Malawians who didn’t exactly approve of the decision (the very reason why it had been initially suspended). So without a vote or proper public consultation, wouldn’t the sale of MSB be undemocratic? Or illegal?

In addition, state-owned property is one means by which the state generates an income to pay for the business of government. Without enough state-owned property (or some other dependable source of an income), most governments are unable to generate enough funds from tax-collection alone. They struggle to pay for services, and the business of government (Civil servant salaries, Security and public order, food, medicines, infrastructure, education, etc) with the result they end up having to borrow money from institutions whose primary motive is making money; international banks who can’t possibly be said to have the best interests of the loan recipient country at heart.

It’s the capitalists I mentioned above who get to provide the loans, on their terms and not the recipient’s terms. Therefore, it must come as no surprise if they disregard the hungry children the poor country has.

North_Darfur_IDP_malnourished_childDisregarding overflowing maternity wards in the country’s hospitals – which desperately need upgrading; with no concern, sympathy or consideration for parents who can’t pay for medical care for their children. Make no mistake, Capitalists are not charities. They are not mandated as governments of western democracies are – to care for the people, especially the most vulnerable people in society. They work without care for the villagers who have no clean water, no electricity and no medicines in hospitals. They don’t think about the young people who have degrees but can’t get jobs in their own countries because there are no jobs available (and the government or domestic private enterprise are not investing in jobs or youth development initiatives).

It’s no big secret, but most Capitalists think only about how much money they can make for themselves, for their organisations / institutions and for their friends.

I may not have all the concrete data to support this somewhat wild claim, but I’m willing to bet a few quid that they do.

The result is inevitable; whole countries end up tormented by debt, with ballooning deficits which can never realistically be got rid of, as Argentina and Greece have found out the hard way in recent years. They become the butt of jokes and stand at the receiving end of blame. Unable to raise credit, and therefore unable to finance their activities. It’s virtually a coup.

greek-bailout-fund2Countries like Greece. Countries like Malawi.

This is the reason why so many countries are in debt, because their governments do not own enough assets from which to extract a dependable and sustainable income, and they have to rely on harmful debts which damage their economies more than they help. Put simply, these countries do not have a job that pays enough for them and ‘their families’ to survive on, so they go to loan sharks who tie a noose around their necks.

In Friedmanian economics (or what he termed neoliberalism), the same governments – most of whom at the time were operating surpluses or relatively small budget deficits in comparison to the current levels –  were told by mostly pro-capitalist economists to relinquish ownership of high yield assets (in industries which were dominated by few individuals/ merchants in monopolies that traded side by side with the state-owned enterprises) they owned, in the process ‘laissez-faire’ economics morphed into ‘market competition’… a phenomenon similar in effect to the fall of the USSR’s property ownership framework while urging in the rise of the Oligarchs. Before you had fewer players gnawing at the national cake, and the government was a significant player- now you have more players at the banquet(even though they are still a minority in comparison to the whole population), but this time, the government is not even at the table.

No prizes for guessing who bought those assets, but the state – these fellows argued, shouldn’t be in the business of running anything. As a result, several decades later – culminating in Thatcherism in Britain – everything from utility companies (including gas and electric suppliers) were mostly owned by corporations; so were the mines, railway and telecommunication companies, virtually every large industry with the capacity to raise huge sums for the government fell out of majority stake public-ownership, in preference to some private outfit, whose primary motive was profit and little else.

Some of these countries do not have oil, or other high demand resources on which to depend in the long-run (and even many which do struggle to manage them properly).They have to rely on a small tax base (~ heavily taxed citizens) for revenues, crops such as tobacco which are fast becoming unpopular, on tax-evading companies to pay their fair share of tax to the state; how crazy do you have to be to depend on profit-shifting (cost-shifting) corporations to stop their dirty tricks and behave (even though there is little indication this will happen anytime soon)? They rely on meagre inflows of Foreign Direct Investment, on aid organisations whose ethics/ morality is often in question. And if all that isn’t sufficient to support their budgets, these countries have a ‘safety’ net which can only be described as a poisonous concoction of interest-driven donors and austerity-prescribing institutions – to provide loans.

In contrast, countries rich in natural resources such as Saudi Arabia, Qatar and Kuwait own significant parts of their largest industries, and can therefore afford to finance almost all the business of government from the sale of their natural resources (in this case oil).

When was the last time you heard that Kuwait or Qatar had asked for a loan from the IMF?

They don’t need to hold onto many state-owned assets outside of the petroleum realm, because the petroleum industry generates enough income to cover the business of government and give them budget surpluses for every other luxury – from financing huge construction projects, to paying for a controversial world cup that’s now increasingly doubtful – thanks to the FIFA scandal.

What about all the bailouts, someone may ask, and loans and aid provided to struggling countries over the last 50 years, where has all that gone? Well, mostly to the banks. And to companies from the countries of the aid providers. In the case of Greece which is suffering the same kind of debilitating debt onslaught as most African countries but on a much larger scale, the money went back to the same capitalists (see another link here from the Guardian) who created the very same mess in the first place.

Thus, considering all this, and more, I have to say for me it’s entirely valid to believe that if you don’t have a large multi-billion dollar industry in your country, if you have few natural resources to exploit, and if many of the common problems African countries have to battle with plague your economy, then it makes perfect sense as a government to hold on to as much industry as you can – and try to make it profitable. Maybe in the same way as Norway has done.

Such a strategy to me has a better chance of achieving a zero deficit budget, giving your country a surplus of disposable income others fail to achieve.

And that is why I think Peter Mutharika and the government of Malawi has got it wrong on Malawi Savings Bank (MSB)

P/s: Go tell the Malawian commentator who appeared to be saying that Malawians were wrong to voice their concerns over the sale of MSB that he has got it completely wrong this time. If anything, Malawians should be mad  for being taken for fools! far from being silent more Malawians should stand up to be counted. Foolish ideas deserve nothing but condemnation!

Comment is spot on

I’ll do something uncharacteristic today (not that I’m new to bending the rules).

I recently saw an interesting article on This is Africa’s website about Joyce Banda, and asked the author whether I could republish it on Malawi Ace. Thankfully, the author, Levi Kabwato – who I do not personally know, but have heard of – agreed, and I intended to republish his article in full. Except, I’ve decided not to republish it in the normal sense of what that usually would entail :-).

Not exactly, because I saw a comment below the article which in my view sums up the situation in Malawi rather nicely. Whether the comment – from one Bob Newman – is true or not is an entirely different story, however this comment – although short, carries some gravity and to quite a degree echoes some of the themes (e.g. complacency, [false]prophets, greed, extravagance, lack of assertiveness, inability to hold leaders accountable) I have been preaching on this blog. So, while I’ll include a link to the actual article, I’ve decided that it makes a lot more sense to publish the comment instead.

And here is the comment:

Newman“Joyce Banda like the rest of Malawi’s politicians is greedy! She never gave up the unnecessary expenses like the 23 car motorcade that nearly ran me and my young family off the road as we holidayed in that country. It was all an act for the donors, or maybe she did mean it all, and then forgot. Or maybe Malawians with their complacency are tainted because they want a magic wand to solve their problems, their own are in need but as long as the individuals who do have and able, then its not their problem. Supposedly a God fearing nation, people spouting miracles and love, obsessed with “prophets” who will bring them wealth, marriage and even babies. Instead of helping themselves by enriching the lives of their fellow citizen and trying to rise about the defeated oppressed state of mind. Its sickening to watch. So another leader comes into power this may, same promises etc but they will never be held accountable because their people can’t be bothered and have a very short attention span. Good luck to the lot of them.”

And the article

Another reason why Africans should own their own resources

man-40134_640Last week a well written article appeared on Al Jazeera arguing against the false and somewhat misleading picture of Corruption that is often put out by the western media. In it, it was suggested that over $900 billion a year is lost from developing to developed nations through tax evasion and illicit financial outflows. While this is a major problem for Africa, as was pointed out several years ago by Kofi Annan here, another reason which results in these outflows is that very few major industry (million dollar revenue generating) in Africa is in fact owned by Africans.

The combination of imperialist colonial legacies, poverty, a lack of capital, insufficient education, corruption, plain hypocrisy and other factors has resulted in a state of affairs whereby even capable Africans find it hard to buy into and run their continent’s biggest industries. While there are many Africans doing well in business throughout Africa, they are by far in the minority, and comparatively too few of them on the ground, than say the number of Canadians who own and control multi-million pound ventures within Canada, or say the number of Portuguese who own and control multi-million dollar companies in Portugal.

Thus, this picture inevitably creates an opportunity or gap for foreign corporations and investors to come in, and sweep away ownership of the whole lot – armed with huge amounts of capital. No surprise the profits end up everywhere else but in Africa…

In my view, far from the land grabs of Robert Mugabe (which others have tried to justify – see here and here), another reason in support of more Africans owning their continent’s industry is that doing so could mean that large amounts of money remain on the continent, to be used for education, health  -building hospitals and providing good wages for doctors, eliminating poverty, fighting corruption, policing and security, building infrustracture, improving the plight of women, investment in the youth, creating jobs, etc. It means essential capital is not being wired out to already rich countries. This in my view is a better strategy against poverty, than aid and handouts, whose monies are comparatively miniscule to the monies being siphoned from Africa.

According to the website of Britannia Mining Inc (a US company with operations in Canada and Malawi) here, the Nthale Iron Ore surface deposits which they found before 2009 are estimated from their geological survey to be at least 4.6 million tonnes in quantity. As often happens with these things, especially if we focus on the word ‘Surface’,in practice the deposits can be far larger than the estimate.

Last Friday, on the 7th of February 2014, before close of trading the price of Iron Ore on the international market was hovering around $125 per ton (see latest figures here). Whichever way this price goes (whether up or down) the next few years, 4.6 million tonnes at $125 per ton is still worth at least $575 million, a hefty sum by any measure. Even if we go with the 68% iron ore component indicated on their website, that’s still worth $391 million

Suppose Britannia Mining invested $100 million into Malawi, to cover processing the Ore, overheads including construction, logistics, wages, corporate governance activities, etc, (and it was proved that they had indeed invested such sums because sometimes businessmen overestimate the level of investment when the truth is much lower) I’d think the benefit to the Britannia would be significantly higher and disproportionately in their favour than in the favour of Malawians. Looking at previous examples of resource conflicts involving corporations in Africa, I seriously doubt that first they would invest such sums. Further, I doubt that Malawians or the Malawian government would benefit equally or at least proportionally from the resource. Which begs the question, who actually owns the resource?

As many others have opined elsewhere (see this for example), the unrestrained greed and unguarded capitalism of western businesses in Africa is causing a lot of damage and harm to Africa, and Africans. And that’s even before we get to what China is doing…

Even if the market price of Iron Ore dropped to say below $100, (say it dropped to $65, which is highly unlikely – the last time it hit $100/ ton was back in Aug 2012, and that was only for a very brief period of time), there would still be at least $300 million worth of deposits to be mined.

Don’t you think if the company that was exploiting the deposit was owned or part-owned (say 50%) by the Malawian government, or a group of Malawians, that the majority of the benefit of the resource would remain in the country, as opposed to being wired out of Malawi?

Post Paladin, and the tax outrage they caused when it was revealed that the Malawian tax authorities were missing out on tax revenues worth $200 million, how much tax have Britannia paid to the Malawian government so far, and how much have they made out of Nthale? The reason that question is crucial is because no level-headed Malawian is keen to see Malawi descend into a chaotic easy target where rich corporations (which are already wealthy and well resourced) come into the country and make billions, while the local population remains poor.

And if governments across the world do not speak against unrestrained greed, who will, seeing most governments in Africa are headed by people who have neither the will nor inclination to do so…?

Kenyatta + Branson
image from https://www.facebook.com/myuhurukenyatta

In my view, Africa needs trade partners who will help rebuild the continent, and not those looking for a quick buck, irrespective of the ethics of the means of acquiring that buck.

If you are looking to make money quick, stay away from Malawi. We don’t want get rich quick capitalists or investors. What Malawi needs are Responsible Capitalists, as opposed to a Liberal and unguarded Capitalists – a badge which brings to mind Halliburton’s Iraq heist (or even ILLOVO’s tax avoidance fiasco –  ILLOVO [which is British owned via Associated Foods Limited] is  company that last year posted a 43% rise in profits per share), an incident which it is fair to say has probably been responsible for not only much suffering, but also global unrest.

Depending on who you ask, its undeniable that corporate wrongdoing is currently happening, and the continent of Africa is being systematically ripped off. Yet there has to come a time when the tide turns, and the wrongdoing is forced to stop (sadly it’s not going to stop voluntarily). In the words of the African Development Bank president Donald Kaberuka here:

“The reality is, Africa is being ripped off big time …Africa wants to grow itself out of poverty through trade and investment – part of doing so is to ensure there is transparency and sound governance in the natural resources sector”

In my view this means rectification, and possibly includes learning lessons from those whose policies do not exacerbate the already bad situation; lessons from the likes of Brazil instead of blindly accepting unfair and discriminatory terms from organisations such as the IMF – whose policies towards the poor countries couldn’t be said to be favourable for local ownership of industry.

Maybe Malawi’s mining sector has more to learn from the likes of Vale and Debswana. Debswana is 50% owned by the Botswana government and 50% owned by De Beers. Vale is the world’s biggest producer of Iron Ore, and their profits recently doubled (Interestingly, in the same article Vale says the price of Iron Ore would hit $130 per ton, which it did, confirming the plausibility of my above little theory). They’ve seen an increase in production, which last year hit 73.4 million tonnes of Iron Ore. They are also a major tax contributor to the Brazilian government, with recent tax payments of $9.6 billion, far greater than anything any corporation have had to pay to an African government.

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Imagine an African continent…” – Kofi Annan

Among the comments underneath the video on YouTube are:

1. “I want to be optimistic but judging from the butt licking seen at a recent Africa Business Forum (held in Dubai), I can assure you the African has a long way to go. It’s about change of mindset. Nobody is interested in HELPING you, they want your RESOURCES stupid! I almost plucked my lashes on hearing Prime Ministers, Ministers and top African leaders trashing each other and worshiping foreign. Over 50+ years after independence, you still cannot put your house in order! African Union my foot!”

2. “I wish this message is played over over in the bedrooms of these insensitive leaders in Africa.”

and

3. “Bless u Papa”

The issue Annan addresses is one that is critical to Africa’s economic development. Africa will not develop if African leaders are squandering African resources. If they are giving away Africa’s riches liberally. It appears like few African leaders ever question whether the contracts they sign with investors are truly in the country’s best interest. Do they ask third-parties for comment, or solicit views from across the country? Is there even a consultation?

Remember my observations here, about ENI which has been given a 70% interest in a Natural Gas finding off the coast of Mozambique? That’s precisely the unwise decisions which Annan refers to. Surely, there is little justification in giving away such a large interest, when Mozambique has more need for such resources which are essential to help it in eradicating poverty. Mozambique could have bought the required equipment and done the appraisal or exploration themselves. In the current global economic crisis, where jobs are scarce, I’m not convinced that anyone would have struggled to find the right talent, with the right experience to do the job to a satisfactory level of competence. In any case, no Mozambican (or African) company is likely to ever be awarded such a large interest in a natural resource in Italy (or indeed in Europe, America, or in Asia).

It’s simply not going to happen, and the Italians would never allow their government such obtuse liberties. Certainly not to the tune of $10 billion.

How then can African leaders justify giving away that much wealth, when their country folk are poor, and when the technology for mapping, finding and extracting Natural gas is somewhat elementary? And readily available. It’s not Space Science, or Nuclear Physics. But even if it were, in the current recession where governments are pushing for cuts throughout the western world, how many Nuclear Physicists or Space scientists, or Geophysical surveyors or Engineers out there are currently out of a job, and would relish such a challenge for less than $150,000 a piece, saving Mozambican government billions? Did the Mozambican government even consider doing the exploration or extraction itself using employed staff?

Lastly, I’ll leave you with a sobering question. Despite the fact that ENI have already sold part of that stake to the Chinese, do you know where the money they get from this deal will go? As in what does a company that makes billions in profits do with an additional $10 billion or more?

Will it be used to build schools or hospitals in Mozambique, some of which unfortunately look like this:

Or would the majority of such funds be used to multiply ENI’s wealth, possibly to issue dividends to ENI’s shareholders in Italy & Europe (or other industrialised and rich countries), where their schools and hospitals look like this:

Where will the majority of this money be invested? In Italy, in Europe? Or  in Africa?

If you showed the contents on this blogpost to any Mozambican, and asked them where in their view those resources are most required, what do you think they will  answer you?

I’d like to know how much (if any) of the actual monetary benefit ENI receives from this interest eventually remains in Mozambique ( for use in development, for Mozambican banks to make investment in foreign markets, etc). Surely if we are to take what Annan seems to clearly allude, Mozambique is the rightful owner of the natural resource. Why then should they receive peanuts from it? Shouldn’t they receive the lions share?

I’m not saying that ENI hasn’t contributed to social programs in Africa, or in other parts of the world, where they have operations,no that’s not what I’m saying. To the contrary ENI has supported social programs, most recently in Libya.

My point is, if European and American companies display wildly unrestrained greed in the form of behavior that suggests that they do infact own African resources, and African politicians are unable, unwilling or pressured from objecting to grossly unfair deals that are ‘discriminatory’ in every meaning of the word, and clearly unfair; and if civil society is unable to force African governments to renegotiate these unfair contracts (ideally before they are signed), how does anyone expect the continent of Africa to ever achieve economic development??When the resources that matter, and could make a huge difference to millions of lives, are given away so easily, moving only from South to North, or only from South to East, or from South to West??

Similar:

1. Who Owns the Land? Cameroon’s Large-Scale Land-Grabs

2. ‘The Resource Curse’: Why Africa’s Oil Riches Don’t Trickle Down to Africans

3. Africa Debate: Will Africa ever benefit from its natural resources?

4. Scramble for Africa

5.  Resource curse not the only reason for Africa’s poverty

6. Gazprom Said to Seek Stake in Eni’s Gas Assets in Mozambique