Selling Malawi for Peanuts

In whatever we do as a country, we need to make sure that the development path we take should be sustainable for the inter-generational cause. Our generation inherited a beautiful country and as the current custodians of this land, it is our duty to safeguard the interests of current and future generations of native Malawians.

It is my belief that those who fought to extricate colonialism were driven with the fervent desire to see this country independent of foreign dominion that was British Imperialism. It is therefore our duty to honour the wishes of those who fought and died for our Malawi by making sure that native Malawians are the drivers of development in Malawi.

David Korten, one of the leading proponents of alternative development once wrote,

The survival of our civilization, and perhaps our very lives, depends on committing ourselves to an alternative development practice guided by the three basic principles of authentic development: justice, sustainability and inclusiveness-each of which is routinely and systematically violated by current practice‘.

Today, Malawi is slowly creating an economy which will become dependent on some foreigners who are only here on temporal basis to make a fortune. Native Malawians are slowly being excluded from many vast opportunities that this nation has to offer, and I believe that the development course taken today by us, will harm the interests of our children and future generations because of our shortsightedness.

The biggest issue that is worrisome in this country is the sale of lucrative land to foreigners. According to Watipaso Mzungu’s report in the Nation newspaper of 17th January, only 5 native Malawians own business land in Limbe. It is a sad development on our part because just about 3 decades ago, native Malawians owned lucrative land especially in the cities of Malawi.  At the rate we are going, native Malawians will end up being excluded in their own country because we only want to satisfy our current intra-generational needs. I am not saying that it is wrong for foreigners to invest in Malawi, but we need to exercise caution when prime land is being sold to foreigners without securing the interests of native Malawians. A good example is that of the conflict between the locals of Masasa in Mangochi and Mota Engil. The locals claim they were not consulted about the selling of their land by the government to Mota Engil. The traditional authority tried to coax the locals to give up their land to Mota Engil, a transnational corporation which has plans to build a 5 star hotel and golf course by the lake in Mangochi. In the end, the irate locals of Masasa fought with the T/A, councillor and the police which left 2 people dead and others seriously injured. These are the situations which are unsustainable for Malawi because we are ready to deprive our own people their lake which ancestors lived with for many generations. The 5 star hotel and golf course is a welcome investment but it should not be to the detriment of the locals at Masasa. I am sure the lake has many vacant tracts of land where this 5 star hotel can be built without displacing people. Development is about including a people’s livelihoods in projects which ensure that poor local communities are not excluded from benefitting from our natural resources.

Another worrying aspect of this land issue is that there are some unscrupulous chiefs who sell large tracts of valuable customary land to foreigners without securing the interests of future generations in their communities. Malawi has one of the most beautiful natural beaches in the world and there is need for us to limit and protect the sale of this land. The large swathes of land along Lake Malawi should be protected for our future generations’ livelihoods and investment opportunities. Future generations of Malawi might have the access to the much needed capital or funds to invest in these areas, and it is in our best interests that we preserve prime land along the lake shore. It would be very selfish of us to deprive our future compatriots of investment opportunities in their own country because of our ineptitude in prioritising national and indigenous interests. According to the Africa Conference on Land Grab’s research, over 55 million hectares of land in Africa has been “grabbed” since the year 2000. These land grabs are happening without any informed consent from development managers and thus millions of vulnerable communities in Africa are at risk of being displaced from their own lands.

Conflicts between Paladin the Australian mining company and the local people at the Kayelekera mining facility shows that Malawi is not ready to manage finite resources in a sustainable manner. Foreign investors scour the earth to find countries with surplus natural resources but with weak or ineffective environmental laws, because it reduces operating costs for firms.  Paladin has been mining uranium for years in Karonga but where do the proceeds go? Can anyone really point out any structure in this country that was built using proceeds from uranium mining? Uranium is a finite resource and if we are not careful, we will deplete our reserves with nothing to show for it. Once again, Malawians are handing out natural resources to the foreigner who will only continue to exploit us.

In the midst of conflicts between the locals and Paladin at Kayelekera, we hear that the government is busy employing foreign companies to explore the possibility of oil in Lake Malawi. Lake Malawi is a source of food and income for the poor living along the lake shore, and if there was to be an oil spillage, we risk the well-being and livelihoods of current and future lakeshore inhabitants. For centuries, our people have lived in harmony with this lake and it would be very selfish of our generation and our leaders to put others at risk because of our voracious greed. In terms of attraction for tourism, Lake Malawi is all we have. I’m sure no Malawian needs any reminder of what happened with Nyika National Park. If it was not for this lake, we would have no tourists coming to Malawi because Lake Malawi is the epitome of attraction in this country. I believe that oil drilling in Lake Malawi is not sustainable because oil is finite resource and also an environmental hazard that can destroy livelihoods and the lake’s Biodiversity. Lake Malawi provides 70 to 75 per cent of the animal protein consumed by both urban and rural communities. It would therefore be negligent for the government to sanction oil drilling in the lake which provides critical habitat for an amazing array of plants and animals including bacteria, fungi, algae, plankton, mussels, snails, crustaceans, insects, fish, amphibians, reptiles, birds and mammals.

When our leaders go outside of this country, they are always selling Malawi to the world as a place of investment opportunities. Indeed Malawi is a peaceful country which offers cheap labour and less competition for businesses, and it is therefore a haven for foreign investors. What we have to remember is that a foreign investor is seeking to make maximum profits, and the only way to do this in a host economy is by “cost reduction”. In Malawi, a lot of native Malawians employed by some foreign companies are being underpaid and exploited for monetary gains which sometimes do not even benefit our economy. A lot of our able graduates are languishing without jobs because some of our so-called investors only employ their relatives in top-tier jobs while Malawians are employed in low-tier jobs. Foreign direct Investment (FDI) is important in modern-day economics and plays the largest part in the growth of economies in a globalised world. However, when FDI is benefiting the foreigner than the host country, there is need to improve the structures to combat unscrupulous employers exploiting the weak and poor. There are a lot of foreign owned companies in Malawi who are exploiting the local personnel simply because our institutional governance structures are either weak or corrupt.  Malawians should not just be used for menial jobs only because we have educated people in this country who can fill up higher positions in foreign owned businesses.

We also have foreign investors who travel hundreds or thousands of miles away to invest in salons, clothes shops or other small enterprise trading entities. As much as Malawi needs investors, I doubt that these small trading entities are bringing any meaningful monetary gains for the country. If our trading partners in the West were following our pattern and forms of foreign investment, it is highly unlikely that their economies would have grown to astronomical heights. Malawi is a poor country that has a high unemployment rate and there is need to protect local entrepreneurs with small business enterprises. If foreigners monopolise the smallholder business market, the local Malawian entrepreneur is at risk of losing his/her business.

If we are to sustain development, native Malawians need to be the primary drivers of the economy and not the other way round. When we give licences or contracts to transnational corporations, Malawians should also be included in these processes to ensure accountability and justice. The Kayelekera mine is a good example whereby we are giving away our uranium to foreigners without any visible gain for the country. If we cannot get a good deal with foreign mining companies, it is not wrong for us to preserve our uranium for our future generations who might be in a better position to manage such resources. In this modern age of technological advancement, uranium plays an important part in the generation of energy. As our population grows, our hydro-electrical plants will not be enough to sustain Malawi and who knows, the future generations of this country might have the capability of setting up nuclear plants! It is therefore important for us to always think for our future generations because they too have the right to enjoy the resources this country has today.

All in all, I believe that we are the generation that is supposed to build a strong foundation for the house of Malawi, and if we fail, our future compatriots will inherit a broken country with little or no promise. And don’t be surprised if at that time, your”investors” all flee, and the country is thrown into chaos and violence.

Development is about continuity and the little we can manage to do in our lifetime is enough for others to carry on. If we do not have the capability to extract natural resources today, then there is no need for us to entrust our wealth with foreigners who are only here exploit our God-granted gifts. We cannot do everything in our lifetime.

Paja amati kuthamanga sikufika!

Congratulations Mr President – Where does Malawi go from here?

APMMy congratulations to President Arthur Peter Mutharika (APM) for winning the 2014 presidential elections in Malawi are aptly late. Over 2 months late – I’m somewhat embarrassed, but just as the lateness was not entirely of my own doing, maybe as a consequence of it (possibly even in spite of it), a lot more thought has gone into preparing these ‘congratulations’ than would have been the case if I had offered them the day APM claimed victory. Had I made haste, the congrats would have been too brief and would lack substance.

In earnest, this post is more of a call to action than an expression of pleasantries. And what better time to do it than when the President is in the US, to meet Barack Obama at the first U.S.-Africa Leaders Summit. Pardon me for comparing the picture of 50 African leaders congregating in Washington DC to meet a US President, with governors being summoned to Rome to meet the Emperor, a summon by the Emperor to rulers of the provinces.

Except in this picture, the United states is not really an empire in the classical sense (if we ignore the economic sense for a moment). Neither are the 50 countries which have been invited to Washington, and are sending  their leaders, governors of US provinces. So the question is, why comply to such a request at all?

The simple and shortest answer is DOLLARS. Our world is controlled by the stuff. And even though the institution that issues currency in the US is essentially a private consortia of unknown entities (they are secret), the scheme of things is that most parts of the world today are currently dancing to the tune of Washington (and possibly to the tune of those who lend to Washington) , in the same way as at the height of the Roman empire, a large part of the civilised world did what Rome said, and were subjects to the political and economic power of ROME.

And while the rise of China could curb the dollar dominance, that’s not really what I want to talk about today.

1. Priorities

Mr President, as a well-educated man, I’m sure you know that there’s nothing wrong with Malawi forming alliances with bigger and more powerful countries. It is beneficial because such alliances can provide access to capital, if not attract inward investment (Your inaugural speech touched on this). Further they are potentially a conduit of technology transfer – which could have huge benefits for a country like Malawi.

Malawi needs developed allies, whether they are from the East, West, North or South.

However, who ultimately benefits from these alliances? Who gets the lion’s share? Are these deals really win-win situations? Could they be made to be win-win situations if they are not? Or is the bigger player benefitting more than the smaller player?

For example if a Chinese or American company invests $300 million into Malawi’s railway infrastructure, mining or agricultural sector, how much of that investment will genuinely foster long-term sustainable growth? A kind of growth in which ordinary Malawians are set to genuinely benefit from the deal? In layman terms, we might ask how many people will have their livelihood transformed by the investment such that they achieve or are likely to achieve long-term financial independence?

I think these questions must be asked, and addressed because it probably will not be of significant benefit to Malawians, if investors are persuaded to invest, but there is no strategy to safeguard the long-term rewards of the investment to ordinary Malawians.

An effective system needs to be created and implemented whereby revenue sharing (between investors and the government / local people) is as much a priority as the luring of investors. Maybe a good place to start would be to create investment organisations or government agencies such as this one in Angola, whose task is to iron out investment rules and create a win-win strategy. Indeed the rhetoric between Beijing and Luanda has increasingly been of creating ‘win-win’ business partnerships.

Malawi should learn something from such partnerships.

This is what most major powers today did in the heydays of their economies. Japan has these agencies, Britain established them many years ago, Germany has them (and has large manufacturing and investment zones which are testament to the success of these agencies), even China has a good number of them. And if you look at younger economies, like Australia and New Zealand, even there you’ll find them. Thus, it’s no surprise that a country such as Iran operates a few of these vehicles. With that benefit of hindsight, is it not important for Malawi to develop Government investment agencies?

2. Education

The technical projects of Bingu Wa Mutharika’s government were an excellent idea. And it is in your government’s best interest if these were successfully completed. We need more high quality educational institutions that will train our workforce, and empower them with skills that they will need to do their jobs well. Transferable skills which they can use in various scenarios. For this to happen we need to train teachers and lecturers abroad, to access this knowledge and impart it on our students. We also need to attract foreign specialists who already possess this knowledge, and bring them to Malawian institutions so that they can impart their knowledge onto our students. We need to broaden the subjects on offer at our institutions, and we need to make higher education more accessible. Here, the use of technology may be useful, in that video technologies that allow the creation of  ‘virtual classrooms’ could provide an excellent (and cheaper) way of technology transfer. Here also is the need for equipment most paramount. Your government would be best advised to source as much educational equipment from other countries or educational institution as can be possible. This can be a real game changer in terms of the quality of graduates we train.

3. Corruption

Mr President, if there’s one critical limiting factor to Africa’s economic development, whose negative effects don’t need re-articulating, it is corruption. The practice is killing the continent. And if nothing is done to curb the prevalence, and extent, we will never catch up with the rest of the world. In Malawi, the Cashgate crisis has put this issue in sharp contrast. And an opportunity has arisen in that addressing corruption in Malawi could close the loopholes for good, safeguarding public funds, and paving the way for sustainable economic development. It is crucial that the perpetrators of the Cashgate scandal be brought to book without selection or bias because this will give people confidence in your government. It really is in your best interest that our government in Malawi becomes clean. A cleaner government is a stronger government. And a stronger government has a better chance of creating and maintaining a strong economy, than one which is inherently corrupt. Examples of this relationship stretch from recent governments in Norway, all the way back to the Roman empire I referenced to above.

4. Unity

Bringing in Muluzi into government was a good and commendable gesture. Although many people I’ve spoken to have doubted whether he has the experience for his current office, I think having him in government is a positive thing. But that aside, I think trying to find common ground, and inviting the opposition into government should go much further. There are many talented people in Malawi. Proud Malawians who have immense talents – but who are not utilised and therefore feel left out. Maybe the creation of Parliamentary committees enables participation on some level, but more must be done. I’d think new blood like Juliana Lungudzi and several other young politicians could do more if entrusted with responsibility within government. Why? Because Malawi needs fresh ideas, and different people have different ideas they bring to the table depending on their experiences. Yet ultimately, we all want Malawi to develop, to do better, so it would be in our own interest if everyone participated. I urge you Sir, to empower this parliament to be different, to be united and a force for good on behalf of ordinary citizens. The way to do that is to keep the legislators busy with meaningful projects that have a real prospect to effect change. And to keep jealousy firmly locked out.

5. Federal System of Governance

This goes without saying, but power shared is responsibility shared. There’s little justification why a country the size of Malawi with a population over 13 million should restrict itself by virtue of its system of government. And one man can never fully cater to the needs of 13 million people. Neither can 192 people – no matter how prolific – do enough to improve the lives of so many people. A Federal System could change that. It will bring more people into participation in the building of our economy, and the power bestowed upon them will enable them to undertake projects free from the control or bureaucracy of a centralised system. Across the world, there are many examples of countries with Federal Systems that work far better than those with centralised systems, and as an expert in law, I’m sure this issue is evident to you.

6. Infrastructure

See this and this (which includes a reference to the Shire-Zambezi Water Way). Increased infrustructure will open our continent up, and make it easier for people to do business. It will also lower the associated costs of investment – a factor which could attract more investors.

7. Investment into Manufacturing and Business

In order to be less reliant on products sourced from outside, we need to develop our own manufacturing sector. Why should we buy from outside things which we can make or source quite cheaply within our own borders? With tobacco earnings set to drop, now could be the time to diversify into manufacturing. After all, China is increasingly becoming an expensive destination for western companies – many are looking for alternatives. Creation of incubation and business centres is also a necessary prerequisite to sustainable economic development. If you make the cost of doing business low in your country, many people will flourish and reward your government handsomely in increased tax contributions.

8. Subsistence farming and preservation of Small Industries

There are lessons to be learned from the Farm Input Subsidy Programme. And your government would be best advised to listen to what the people want. Thus, how many fishermen who currently use canoes for their trade would do better with a boat? How many farmers who use hoes to prepare the fields could benefit from a cooperative that lends out a tractor? Similarly, what should the government do to help industries such as these:  How second-hand clothes kill business for Malawi’s tailors.

9. Accountability

Our culture of accountability needs to be restored in Malawi. People should not do wrong (be it in a parastatal or top civil service position) and think they can get away with it. A good way forward would be for regular performance reviews not only for ministers, but also ordinary civil servants, preferably to be undertaken by external auditors (to minimise the prospect of favouritism developing into self-accountability). That way we would be replacing entitlement (where people think they have a right to a job – even when they are not qualified for it / when they are bad workers) with accountability. Similarly, it must never be right for an investor whose company has earned millions of dollars through doing business in Malawi, to evade tax, legitimately, on Malawian soil. The loopholes need to be closed shut.

10. Increased Trade with other African countries.

I urge you sir to be an advocate of the Africa brand. We need to import more from our immediate neighbours than from farther afield. We need to lobby the west to act in reducing cost of remittances. We need Africans to do more business with other Africans. See this for more information.

11. Security and Safety

We need to restore our confidence in the police. Malawi needs more security, not only along our borders but within our towns and cities. People in Malawi don’t feel safe anymore. Not like how safety used to be defined in the 70’s and 80’s. If we can’t afford police cars, let the government buy our police officers motorcycles (which are cheaper to run), so that they are able to respond to calls for help.

12. Investment in International markets

Malawi and other African countries need to invest in international markets. This should be a strategic and long-term initiative. We need to create organisations that invest in global companies around the world, so that the dividends therefrom are wired back to our countries in Africa, boosting our economies, and thereby contributing to our continent’s economic growth. Just see this article titled Bleeding Money: Africa Is A Net Creditor To The World, Illicit Outflow Actually Exceeds Inflow Of Aid, Investment, to understand why this is necessary. It’s urgent.

Mr president, Malawians are looking up to you now. They need leadership accompanied by action, and less of the empty promises of previous regimes.

Once again, congratulations Mr President Sir!

 

 

 

 

 

 

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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Where is Africa’s manufacturing?

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I prefer to ask (and answer) the above question, that references to the ‘stage’ or ‘point’ (not physical location) when asked ‘Why is Africa not manufacturing?’ . I’ve been asked this question so many times, by people beffudled as to how Africa pretty much fails where everybody else has succeeded. The reason I prefer to answer the above question is because unlike popular belief Africa is in fact manufacturing, just not as much as everyone else, and just not always visibly (you don’t hear these stories on Tv, and they are rarely in the mainstream media publications – unless you read FT – although that’s arguably not mainstream)

Similar to the questions of manufacturing is that of whether the skills for the establishment of a bigger manufacturing sector are readily available for investors to tap into?

KiZerbo200

I’ll start with the bad news:- If the skills are available on the continent, then as things stand, they are in severe shortage and are not really of African origin. According to research from OECD [see BBC link here], by the end of this decade (emphasis required, that’s by 2020) 4 of every 10 young graduate is going to be either from India or China. Looking at the list of countries listed, not even a single one is an African country. What does that say? Well, a number of things; that we are not producing enough graduates, or that the number of African graduates with skill sets (and of a high calibre) who can compete with their contemporaries from Chinese and Indian universities is comparatively insignificant. Which is worrying, because it essentially means Africa’s manufacturing is nowhere, or only material if driven and held together by non-African effectors.

In the past the Education of Africans has received very little support from those who should know better. Most dictators who took over from the colonialists did too little to maintain the standard and level of Education (or Higher Education) across Africa, focussing instead of consolidating their rule. With a few exceptions, multiparty governments that came after dictatorships followed suit, by not investing anywhere near enough as was necessary. The donors that were bed-fellows with the dictators (and those that came after) arguably weren’t as sympathetic or visionary. According to an ESSA paper (quoted in this paper titled “THE ROLE OF HIGHER EDUCATION IN AFRICA” by Prof.Dr.Birgit Brock-Utne of the Institute for Educational Research at the University of Oslo) the World Bank once viewed Higher Education in Africa as a luxury:

“To meet minimally acceptable targets for coverage and quality of lower levels of education in most countries, as a general rule the tertiary sub sector’s share of stagnant real public education expenditures cannot expand further, and in some cases may have to contract. Some combination of efficiency improvements, increased private contribution to costs, and constrained growth of – in some countries and fields, outright cutback in – production of graduates must be sought.” (World Bank 1988: 95)

Expenditure on education was merely a self-serving budgetary exercise, and it didn’t matter what the result was, or whether indeed Africa would be ‘left-behind’ as a direct consequence of the under-investment, what mattered was only that money had been saved.

Without research into what their policy position currently is, I wouldn’t be able to tell you whether this view has changed or not.

Investors with the means have been to put it mildly, shy of investing on the continent let alone into skills development. A paper by a researcher named Paul Bennell which addresses the issue of whether structural adjustments programs ( these are those stringent rules imposed on African countries as part of loan agreements from the likes of IMF and World Bank) over a 15 year period have indeed achieved the desired response (i.e. increasing foreign investment in the hope of triggering technology transfer from the industrialized countries to Africa) paints a depressing picture. To quote Bennell (via this link):

Surprisingly, the share of net earnings from UK manufacturing investments in Africa remitted each year to the UK was higher than the global average between 1985 and 1990 . . . While UK companies have been keen to reinvest very sizable proportions of their profits in North America, Europe and Asia, investment opportunities in manufacturing have generally been very limited in Africa and thus, given the option, most parent companies would like to remit the bulk of subsidiary profits from the region

In other words, Africa was where you went to make your money, and not a place to reinvest your profits.

But it isn’t all bad news.

Recently, the African Development Bank’s (AfDB) approved a US$ 45 million grant for the creation of a Pan African University (PAU) that will consist of five Pan African Institutes focussing mainly on science, technology and innovation. The background to the story reads:

Africa has only 35 scientists and engineers per million inhabitants, compared with 168 for Brazil, 2,457 for Europe and 4,103 for the United States. Shortage of skills has been a major constraint to Africa’s progress in science, technology and innovation. Due to low investment in research and development, Africa ranks low in global competitiveness and productivity. African students tend to opt for economics, business, law and social sciences rather than science, engineering and technology, hampering the continent’s competitiveness and growth. The result is a mismatch between skills produced and private sector jobs.

While one would hope this initiative will be a success, and the Institutes will not falter under the common problems that beset universities and research institutions across much of Africa, it will be interesting to see how this develops.

As is well understood universally, innovation is the lifeblood of industry, and without the creation of ground-breaking and new products,  a country cannot advance or gain a competitive advantage. It was the case during the industrial revolution, during the rise of countries such as Germany, Russia, Japan and even Brazil. The exception (only to an extent) to this rule appears to be China, but that’s for a whole load of other reasons that distinguish it from the rest of mankind

But as the African Development Bank correctly observed above, in order to create ground-breaking innovations and products, and in order to influence global scientific research and technology, you need a skilled workforce. That’s why  the AfDB initiative represents a realignment of Africa’s potential in the right direction.

Across Africa, there are many success stories that are truly inspirational, although as i stated above, these are not shouted about in the mainstream media. One such inspirational story is that of Fabrinox, a south African company manufacturing sheet metal that was formed in 1993, and that has seen turnover in recent years hit US$5.8 million. Asked what had been the best decision he had made to grow his company, the company founder says:

To have followed the advice of my business mentor Johan Beyers to not restrict Fabrinox and its people to one geographical area, product or service, but to take a global view in running the business. For instance, it means that we think globally in terms of our supply chain, and are most willing to service clients beyond the boundaries of the Western Cape province in which we are located, and South Africa for that matter.

In addition to such success stories, there are also many partnerships between foreign manufacturers and agricultural producers across Africa, and some of those partnerships are genuinely beneficial to Africans. Who knows maybe some of these could one day pave way for an African manufacturing industry of its own, if some haven’t began to do so already? After all, manufacturing in industries such as motorcycle build and assembly in China began when after purchasing equipment from Japan, the Chinese assemblers began to modify the Japanese made components; fast forward a couple of decades, and China was making its own motorcycles which essentially were improvements (i.e. “innovations” more or less) of the original Japanese models.

The partnerships article above correctly points out that:

The level of mechanisation in African farming is still very low. Kenya had 25 tractors per 100 square kilometres of arable land in 2009 while Nigeria has almost seven, according to the most recent data from World Bank. That compares with an average of 271 machines in the US.

There are also some manufacturers who are looking towards Africa not because it’s ideal, but because they are getting sick and tired of the happenings in Asia (workplace safety that in recent years has become a major issue, levels of corruption, the increasing fees demanded by some factory owners, etc)

But before anybody gets too excited, look, the Chinese are planning on setting up shop in Africa! (see here and here). Although here one must wonder, does that mean Chinese labour (as they have been known to do in some African countries across the continent) or will these factories use African labour?

As for the power that will drive everything and get every bit of machinery working (in some countries – putting an end to years of intermittent blackouts), that’s about to get much more exciting. At least that’s what Obama seems to be saying.

Investment and Economic Development in Africa: An Investor’s Perspective.

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The Q & A’s continue and my guest today is an investment professional and new business consultant. Mr Kurt Davis Jnr thank you for taking time to do this.

1.    As an investor who has invested in Africa in the past, if you were to summarise your experiences, what has been your African experience? The African continent is one of daily change and opportunity.

You must be flexible, adaptable, and open. Being a finance or operations expert is great. But if you cannot tailor your expertise to meet the need of dynamic and constantly changing environment, you will likely fail.

2.    Most African countries (including Malawi) which were former colonies of European countries gained their independence around early to mid-1960. Similar time as say Singapore, which gained independence from Britain in 1963. While Singapore is now considered a developed nation with the third highest per capita income in the world, most African countries continue to struggle economically. In your view, why do African countries continue to struggle economically when most of their Asian counterparts have managed to achieve a form of economic development?

The reality is that there are many similarities between some African countries and some Asian countries but there are many differences at the same time. For example, South Korea benefited from unlimited U.S. aid money during the 1960s and 1970s as the U.S. government worked endlessly to ensure that South Korea would not become a Communist country. It would be a mistake to ignore how that early financial start backed by U.S. technical assistance pushed the country ahead of its peers in Asia and Africa during that time.

3.    While there has been visible progress in some parts of Africa, when one travels in other parts, especially the rural areas, the story of poverty, deprivation and suffering is the same. If it’s not wars and ethnic violence, then it’s disease and poor healthcare, or famine and hunger, else it’s lack of resources, a poor education, poverty, corruption…the list goes on.  After over 50 years of foreign intervention and billions in aid, what in your view is preventing African countries from getting their act together?

Many countries have ‘gotten their act together’ but the process is a process. Development is not an overnight thing. Additionally, similar to my point on South Korea, timing is a factor and so is amount of money. There are many factors to consider in why some countries have not achieved their development goals in their expected time frames.

4.    The BRIC countries have been flagged as models of economic development. What important lessons do you think people in African countries can learn from the rise of the BRIC countries, in particular China, India and Brazil?

There are many lessons that can be learned on managing high growth sectors and economies. For example, choosing how to invest government monies in specific sectors and projects is a complicated process but China, India and Brazil offer some lessons on what to do and not to do. It would be the failure of African countries and the world to not take note. At the same time, it is always important to consider the differences and adjust for them. For example, India and China are both bigger populations than the entire African continent. Thus, you can only compare China to Nigeria to a certain extent.

5.    As an investor, what kind of industries and technologies do you invest in, and what indicators in an opportunity make it an attractive investment opportunity?

The strongest sectors for growth are agriculture/agribusiness, fast-moving consumer goods (FMCG), infrastructure (including energy and power), the financial sector (especially in East Africa and West Africa), and mining (including mining logistics).

6.    One of the problems that has been cited as holding back the growth of Africa is the relatively low levels of Venture capital investment into Africa, when compared for example with the investment that has been flowing into South East Asia or South America. One explanation for this is that there are relatively fewer Start-ups in Africa that are worth investing in; that the risk of investing into Africa is simply too high? In your view, why can’t more business owners in western countries invest in Africa?

There is still an unsubstantiated fear about investing in Africa. Many potential investors will cite corruption or overall lack of growth opportunity as a reason to avoid Africa. This is obviously not indicative of what is actually happening on the ground. Yet, the old adage that perception is reality remains. Changing perception sadly is harder than changing reality. Over time, perception of Africa should match the true reality of growth and potential on the ground.

7.    In your view, how important is the role of Education to the Economic Development of a country?  What about Security and Infrastructure (including airports), are they serious determinants to attracting investors?

Education is huge. Companies across the continent struggle to find qualified talent. It is imperative that countries develop the talent pool necessary to support their emerging economies. For example, the development of geologists in energy-booming countries could ensure a true transfer of knowledge between foreign developers and local individuals and also ensure that foreign companies have a local pool of candidates to hire from.

Security is less of a concern. Despite the recent terrorist attack in Nairobi, security is as much a concern in most African countries as it is in other emerging markets. Still the African continent must still overcome outdated perceptions with the general public. But for an investor, security should not be the highest concern these days.

Infrastructure is still a barrier in some African countries. But this barrier offers great opportunity for investment. Energy investments, for example, could provide a triple bottom line benefit through great returns for investors, social benefits, and environmental benefits (especially with renewable energy).

8.    It is no secret that corruption is a big impediment to economic development in Africa. And whilst circumstances may be different from one African country to the next, in your experience, what creates, feeds and sustains a culture of greed and corruption across Africa?

I would completely disagree with the concept that there is a unique culture of greed and corruption across Africa. Corruption sadly rears its ugly head in many parts of the world. But to say the African continent is unique or excessive in this sense would undermine the entire discussion. Some countries must make greater efforts to combat corruption and are doing so with results already showing.

9.    Bureaucracy has been cited as holding back Africa’s developmental progress. How much is Africa losing as a result of bureaucracy? In our article here, we theorised (giving an example of Singapore) that cutting out excessive bureaucracy could act as a massive catalyst to Malawi’s economic development since in such an environment it would be much easier for investors to be able to start companies and do business. In your view, to what extent does such a theory hold water?

Bureaucracy can be a problem. But it is only one of the problems in the overall scheme of things. Each country in Africa must choose a combination of rules and regulations that account for local culture, ideology and thinking, and country policy objectives in order to achieve success. One level of bureaucracy could be excessive for one country but appropriate for another.

Kurt Davis Jnr PhotoKurt Davis Jr. is an experienced private equity investment professional and new business consultant. He possesses an expansive knowledge of Africa and strong deal/transaction experience from work with Schulze Global Investments, a private equity firm in Africa, Asia and South America, with Kukula Capital, a venture finance fund manager in Africa, with the African Development Bank, a development finance institution in Africa, and with Swicorp, S.A., a private equity fund manager with US$1.4 billion under management for the Middle East and North Africa (MENA) region. His sector experience includes agribusiness, fast-moving consumer goods (FMCG), heavy industry, infrastructure (including energy), manufacturing, natural resources, real estate, and telecommunications. Mr. Davis provides consultancy and advisory services to investors interested in Africa. He has spent time in 25+ countries on the African continent with some of this experience encompassed in his writings on Africa. +Mr. Davis holds a Master in Business Administration (M.B.A.) focused in Finance, Operations Management, and Entrepreneurship from the University of Chicago Booth School of Business and a Juris Doctorate (J.D.) concentrated in Tax Law and Corporate Law from the University of Virginia School of Law. He has passed CFA Level I and II. He is also a licensed attorney in the state of Massachusetts and the state of New York in the United States of America. Mr. Davis is open to expertise and information requests. He can be reached at Kurt.Davis.Jr@gmail.com

Infrastructure

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While you’ll find several references to Infrastructure on this site, I think this time around I’ll leave it to the experts to do the convincing. Paja akulu anati mutu umodzi siwusenza denga

And if one takes time to browse through the cited references below (some of which are straight off page 1 + 2 of Google), it’s hard to argue against the fact that Infrastructure is one of the essential drivers of economic development. In this sense, and for the avoidance of doubt,  infrastructure is not limited to roads, railways, airports and buildings (for hotels, schools, Universities, hospitals, business centres, research facilities, etc), but also includes for example a good telecommunication network (internet, voice, data and the like) and power supply.

Infrastructure for sustainable development – European Commission

Intro reads: ” Good quality infrastructure is a key ingredient for sustainable development. All countries need efficient transport, sanitation, energy and communications systems if they are to prosper and provide a decent standard of living for their populations. Unfortunately, many developing countries possess poor infrastructure, which hampers their growth and ability to trade in the global economy. “

Infrastructure’s value to economic growth – Richard Lee, Partner, KPMG (via BBC)

which includes the statement : “…In fact, a recent KPMG International survey found that an overwhelming majority – 90% – of business executives said that the availability and quality of infrastructure affects where they locate their business operations…”

Needs For and Benefits of Infrastructure Connectivity – Asian Development Bank Institute
which includes the statement: “… The rapid economic and population growth of Asian economies in recent years has put huge pressure on its existing infrastructure, particularly in transport and energy, but also in communications. Asia’s infrastructure is world-class in parts, but is generally below the global average. This is a bottleneck to future growth, a threat to competitiveness, and an obstacle to poverty reduction.”
which includes the following statement: – “…An adequate infrastructure is a prerequisite to economic development. Transportation and communications are important in developing and strengthening social, political, and commercial ties. These ties must be developed before trade can be handled on a regular basis.”
Why Is Infrastructure Important – David Alan Aschauer, formerly Senior Economist, Federal Reserve Bank of Chicago, and now (at the date of writing/publication) Elmer W.Campbell Professor of Economics, Bates College
Infrastructure and Poverty – The Global Poverty Project
the Intro reads: “Infrastructure – physical resources like roads, telecommunication networks, schools and drains – is necessary for a society to function: people can’t access healthcare if there are no hospitals; trade can’t take place if there are no roads on which to transport goods to markets. Infrastructure facilitates the basic functions of a society that are necessary to transport resources and people, produce and trade goods, provide essential services and ultimately reduce poverty.”
it follows with ” Lack of infrastructure also leads to lack of employment by acting as a disincentive to investment. Companies who struggle to produce and sell goods in an area with inadequate roads, electricity or water supply do not want to set up the factories or businesses that could potentially generate employment, improve living standards and reduce poverty. “
and “Lack of infrastructure can also lead to poor health and high mortality. Where there are no clinics or hospitals available, or where lack of roads or bridges makes them inaccessible, people cannot access the medical services that they require to be healthy and productive. A villager in Mozambique explains “The most dangerous thing is that [cholera] has always appeared during the rainy season, and it is then that the river is in spate and boats cannot cross.”
The Broader Benefits of Transportation Infrastructure – Ian Sue Wing, William P. Anderson and T.R. Lakshmanan, Center for Transportation Studies and Dept. of Geography & Environment, Boston University [similar article here]
uses the term Meso-scale to describe their approach. A slide from their presentation is quite appropriate in summarising some of the developmental + ‘equilibrium’ impacts, and worth replication:-
infra-messo
Finance and Infrastructure: The Economic Benefits of Infrastructure Projects Procured with Private Finance –  Andrew W Morley, International Congress Washington, D.C. USA, April 19-26 2002.
Infrastructure – Engineers Against Poverty
Intro reads as follows: “Without significant progress in the provision of infrastructure services it will be impossible for many countries to significantly achieve the Millennium Development Goals (MDGs). Globally, more than 1 billion people have no access to roads, 900 million do not have safe drinking water, 2.3 billion lack reliable sources of energy, 2.5 billion have no sanitation  facilities and 4 billion are without modern communication services.”
which contains the paragraph “When it comes to infrastructure development, Thailand has done very well compared with some other Southeast Asian neighbors. In fact, appropriate infrastructure, including access to power and water, has helped Thailand fuel rapid economic growth during the past three decades. Good infrastructure has made Thailand attractive to foreign investment, helped facilitate international trade, and improved the efficiency of everyday business activities. All of these led to more jobs, and more jobs led to more income for the poor. For some not-so-poor people, good infrastructure also helps them improve productivity or fulfill their lifestyles.”
RURAL INFRASTRUCTURE AND ECONOMIC DEVELOPMENT –  Dr. Mohammad Tarique, Lecturer, University Dept. of Economics, B.R.Ambedkar Bihar University, Muzaffarpur.
Abstract reads: “Infrastructure development has a key role to play in both economic growth and poverty reduction. Failure to accelerate investments in rural infrastructure will make a mockery of efforts to achieve the Millennium Development Goals in poor developing countries while at the same time severely limit opportunities for these countries to benefit from trade liberalisation, international capital markets and other potential benefits offered by globalisation”
Private Sector Participation in Infrastructure:the case of Thailand – Deunden Nikomborirak – Asian Development Bank Institute Discussion Paper No. 19
Road Funding: Time for a Change :- Economic Growth Benefits of Transportation Infrastructure Investment – Dr. John C. Taylor,  Associate professor of marketing and logistics at Grand Valley State University and a senior policy analyst with the Mackinac Center for Public Policy in Midland, Michigan.
which contains the statement “…No, the key benefit and reason for transportation investment is from helping to make businesses and individuals more productive, across the geographic landscape. We rely on our transportation investments to increase the economy’s overall productivity – both in terms of making individual travel (business and personal) faster and more reliable, and in terms of the productivity benefits of making freight flows faster and more reliable…”
World Bank — Malawi’s infrastructure: A continental perspective: Vivien Foster; Maria Shkaratan, ISSN: 1813-9450.

As you can see, the above papers + articles present a credible argument that a good and functional infrastructure is essential for economic development.
But that’s not to say that there are no credible counter arguments against infrastructure. That’s not what I’m saying. I’m sure one can cite the prevention of deforestation or preservation of natural habitats as factors against excessive infrastructure. Also, there is the issue of encouraging tourism which could probably mean encouraging greater biodiversity, creating / preserving forests  and wildlife reserves (but even in such circumstances, you still need a world-class airport for a good first impression (the kind of impression you get when you first land at Hong Kong International); functional roads (at least 3 lanes on each side between major cities) that minimises journey times; and world-class hotels and resorts. Why should you give tourists (who in large numbers can be the source of much-needed forex revenue) less than what they are accustomed to, and expect that they will return to your country, or recommend a visit to their friends?). Never mind recommendation, how can you compete on the global stage, when your facilities are substandard? Further, why shouldn’t it be possible to build modern factories with reduced carbon footprint (see Marks & Spencer’s ‘eco-factories’ initiative here) side by side with wildlife/forest reserves?
So, considering all this, I find it hard to imagine a credible setting in which arguments against infrastructure may find pre-eminence, over arguments for infrastructure; especially for a poor country whose majority infrastructure was built  50-year ago; whose roads are littered with pot-holes, with virtually no world-class business centres; that has old airports – with poor facilities including smelly badly looked after toilets; a country that experiences intermittent blackouts almost every week; that is struggling to attract significant investment from abroad; a country where 74% of the population live below the poverty line; which is heavily reliant on agriculture and dwindling tobacco exports + has negligible industrial output; has few natural resources; has a large relatively unskilled young population and suffers widespread corruption and cronyism, even in the upper echelons of its government.

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My question to you then is: why are the leaders of such countries not investing heavily (sooner than later) into major infrastructure projects, when it is in fact a determinant factor in economic development and a serious game changer? Is it because they are in fact not cut out for the job and would be better followers instead of leaders?

Reshaping the African Politician – Nick Wright

reshaping-african-leaderIn my quest to find progressive views and forward-thinking ideas which if embraced could potentially improve Malawi’s economic situation, I found myself interviewing Sir Edward Clay, the former British Ambassador to Kenya, whose interview will be posted on this website soon. He spoke about some very interesting things, including introducing me to another individual, a  British historian in the form of Nick Wright, who has spent several years in Africa, including some time in Malawi. It is my pleasure to share with the readership of  this website his insightful observations:-

1. You’ve had some exposure to Malawi and Africa in general… if you were to summarise your experiences, what has been your African experience?

My wife spent several years as a physiotherapist in Mulago Hospital, [in] Kampala. We had several Ugandan friends from that experience. After leaving our jobs in Australia, we enrolled in the (British) Voluntary Service Overseas (VSO): I as teacher of English in Chimwankhunda Community Day Secondary School in Blantyre, Malawi; she as physiotherapist at Malawi Against Polio (MAP), also in Blantyre. We were there for two happy years. I became interested in Malawian politics at that time and started as Malawi correspondent for the London-based Africa Confidential. Journalism of this sort continued for several years after our departure from Malawi in 2001 and obliged me to make several return visits to Malawi in order to conduct interviews. I met the leaders of all major Malawian political parties and the heads of some government departments, foreign embassies, aid-agencies, newspapers and business enterprises.

2. Most of the African countries in which you spent time in gained their independence around early to mid-1960’s. And at the time, Pan-Africanism was probably at its peak, with a freedom fervour sweeping across the continent, something that can probably be compared to what we recently witnessed in North Africa with the so-called ‘Arab spring’; It’s now close to 50 years since those ‘glorious days’, but to what extent in your view have the goals or overarching expectations of ‘independence’ conceptualised by the founding fathers of African countries been realised for the majority of their citizens?

Nkrumah’s pan-African ideal of the 1960s was never adopted because arrogant African presidents, like Hastings Banda, were (and still are) too attached to the trappings of a threadbare sovereignty to be able to surrender all the flags, palaces, UN flummery, and motorcades. I think the Western powers had an interest in divide and rule, too.

I once wrote an article which mourned the collapse of the East African Federation for just such reasons: “Central Africa’s Sovereign Issues”. Regional federations, as stepping-stones to wider unions, make good sense for Africa – especially for land-locked, resource-poor, Malawi – and they must not be allowed to remain the modern taboo that Kamuzu Banda made them.
This is another example, I’m afraid, of too much power in the hands of Presidents who scorn institutions like Parliament, the Judiciary; the printed media; the Civil Service, the Constitution which are set up to be their “checks and balances”. Presidents are told by everybody around them (until they are toppled) that they are God Almighty, and they come to believe it. Only Nyerere came close to the ideal of a model, modest, president, and his modesty was treated with contempt by the others

I developed a healthy respect and liking for individual Malawians but a very strong feeling that Western aid policies were failing Malawi badly. Why? Because: (1)they fed complacency, idleness, irresponsibility and corruption within the Malawian elites; (2)they fed arrogance amongst the expatriate community who were forever in the company of grateful and respectful poor people; (3)they created passivity and feelings of helplessness in ordinary Malawian people, including those in government who had their responsibilities taken away from them. Whilst being aware of the many individual benefits brought to poor Malawians by individual aid- projects, I felt that the real beneficiaries of aid-money in Malawi were: (1)state-presidents and their family members, friends, and hangers-on; (2)the staff of a multitude of NGOs and aid-agencies, and (3)expatriate consultants expensively employed by DFID, the EU, the UN etc to write expert reports. Bingu wa Mutharika was on the right track with his angry denunciations of Western aid but his protestation was undermined by his own lavish personal spending and his grotesque toleration of corruption. How can a person who makes all the decisions in Malawi and whose immediately previous experience was in minibus driving and in the corrupt bureaucracy of COMESA(Bingu) or small business (Muluzi), be trusted to act solely in the public interest of Malawi? Bakili Muluzi was more likeable as a man than Bingu but identical in his failure to distinguish between personal and public.

3. And if such goals and expectations have largely not been met, what are the main reasons as to why they have not been met?

Far too much unchecked power is in the hands of individual Malawians, especially the President, because of the “Big Man” [similar link here] culture which prevails in the country and the weakness of public institutions. The independent national newspapers, like The Nation, do a reasonable investigative job but are easily intimidated by threats to their advertising revenues and by their own lack of resources; the MBC public broadcaster is entirely under government control and biased in favour of government; the Malawian churches retain a sporadic consciousness of their responsibility as “public conscience” of Malawi but are often distracted by their own factionalism. The Parliamentary committees occasionally exercise oversight on public spending but only when in session and they are often starved of vital evidence by government departments and tend to divide on party-lines. The Anti-Corruption Bureau (ACB) is widely considered to be only for “small-fry” financial criminality, and firmly under presidential control where corruption itself is often centred. Western embassies, (individually and collectively), sometimes exercise a restraining hand on the presidency through their aid-policies, but their staffs are usually too comfortably entrenched in their own luxurious lifestyles, and too suspicious of each other and of China, to risk serious confrontation with the president. The Executive arm of government (effectively the President) is overwhelmingly powerful in Malawi, and this patrimonial model of government filters down to all levels of administration. “L’etat c’est moi”

4. While there has been visible progress in some parts of Africa, when one travels in other parts, especially the rural areas, the story of suffering is the same. If it’s not wars and ethnic violence, then it’s disease and poor healthcare, or famine and hunger, else it’s lack of resources, poverty, corruption…the list goes on.  After over 50 years of foreign intervention and billions of dollars in aid, what in your view is preventing Africa from getting its act together?

Aid is ruining Malawians’ self-respect and their natural honesty and capacity for hard work. Its gradual removal will cause as much consternation in Western donor capitals (“What will Bob Geldof say about all the hungry people?”) as it will in some of the poorest households of Malawi (“See how our politicians can’t provide “Development”). But it is a “bullet” that must be “bitten” for the greater long-term good of Malawi. The Fertiliser Subsidy (FISP) which absorbs most of the agricultural budget has become a millstone around the neck of Malawi’s agricultural development.

The subject of overseas aid is a very important one and for the reasons explained above. Why should the presidency take note of competing institutions when the Executive is virtually guaranteed free money from overseas? Why should government departments do their jobs properly when overseas experts with university degrees in International Development seem to know all the answers? Why should Presidents feel the necessity of proper financial accountability?

All aid should be phased out. The endless tinkering between “good” and “bad” aid will not do for Malawi any more. It is ALL bad! If its abolition means the collapse of Western-style democracy in Malawi, then let it go. It will return in a different, better, African, form!

5. One of the problems that has been cited as holding back the growth of African economies is the relatively low levels of Venture capital investment into Africa, when compared for example with the Venture capital investment that has been flowing into Asia or South America. Do you agree?

Venture capital is largely absent from Malawi, except in uranium-mining at Kayelekera, and in tourism (i.e where Malawian control and profit-taking is minimal)

Nick Wright has worked in the History Department at Adelaide University (1975-1991) and for Africa Confidential as its Malawi correspondent (2003-2010).

Other Articles by Nick Wright:

 

Global 100 Voices: No 4

My next guest is a good friend and a brother who I have known for many years. Based in London, he is a true son of Malawi, and someone who I genuinely believe has a bright future ahead of him. Yet it was only recently that I discovered just how much passion and ‘fire’ he has for Africa. Mr James Woods-Nkhutabasa, thanks for doing the Global 100 Voices Interview!

[ Brief profile: James has several years’ of communications experience working for public and private organisations, in promoting achievement in African leadership, issues concerning global governance and development. He is also one of the founding members of Diaspora Capital LLP (dCAP), a members investment club which seeks to make socially impactful investments in Africa ]
  1. As a Malawian, how important is Malawi’s Socio-Economic stability to you and your family?

I believe a socio-economic stable environment is beneficial not only for the nation only provided government can create an arena of good governance, accountability, transparency and no corruption. This is also attractive for investors.

  1. After nearly 50 years since independence, what visible progress do you think Malawi has made since independence?

The visible progress for me is that Malawi is now a democratic nation, people have more access to goods and are also more connected due to the digital revolution. On the downside Malawi is still fighting the goals set at independence and poverty levels remain high. We still have a long way to go.  Maybe regional integration is key to addressing this weakness through the delivery of wider social and economic benefits that would benefit the country and drive its development further. We need to stop thinking of Malawi as a single unit but think of it as a major part of the remaining 53 nations on the continent. Only then will we sing our success story. But we need to get our house in order first.

recycleds      3. In your view, what pressing challenges remain and what should Malawi aspire towards?

Malawi, similarly to other African countries is facing major corruption issues and a lack of good governance. Our parliament is also filled with recycled politicians – what I aptly name – ‘The Kamuzu/Muluzi Giants’. It seems to me that our politicians change allegiances as much as they change suits. The political world, leading a nation, serving your people should be a vocation or ‘a calling’ but not a pension, as it currently seems to be for some.

Malawi should aim to be a success story in good governance.

  1. In view of those challenges, what do you think is the role of government in tackling those challenges?

Create an environment of patriotism, transparency and competence. The government needs to remember that they are there to serve their people: men, women and children and thus to run the country accordingly as it is their responsibility. We need strong leadership and this can be achieved collectively, through government and civil society. Malawi needs an enlightened and dedicated sort of leadership that looks forward and not backward. Most importantly get the right sort of people involved in government.

  1. As someone who has lived outside Malawi for several years and hopefully been exposed to modern and progressive ideas, what things in your country of residence have had the greatest impact on you, and why?

The competitive work ethic and drive that people have in London is absolutely brilliant. People have the desire and resilience to achieve the best possible outcome. This has taught me to continuously improve to keep up with this ‘rat race’ and be able to be significant in the growth and development of the nation.

  1. What lessons do you think Malawians and the Malawian leadership can learn from those ideas?

Malawi has extremely bright individuals who can contribute great things for the nation. The leadership needs to promote an open society – welcoming of all and not based on ethnicity, tribe or social standing, but instead on what you can offer to drive forward development.

  1. If you have recently visited Malawi, what struck you most as the greatest sign of improvement or development?

The amount of women and youth trying to make a living through a business; truly inspiring to see the entrepreneurial spirit and a can-do attitude, be it selling vegetables on the side of the road to managing small wholesalers. It is really amazing at how they have adopted technology such as the use of mobile phones to sell and place orders. This has inspired me.

  1. What struck you most as the biggest sign of stagnation or regression?

I believe the lack of good educational standards and opportunities have really been under-played. Youth are the future of Malawi, the leaders of tomorrow; they are being frustrated by the lack of opportunities and a lack good of education. These youth can be a curse or a blessing and rather sadly it has been a curse on the nation with increased criminal activity. If we do not invest in the youth and create jobs how are we to have a good future? Without the right investment we will continue to face the same problems of corruption, poor leadership and bad governance.

  1. Malawians will be going to the polls in 2014, to elect a president. In your view what kind of leader does Malawi NEED, considering the country’s current challenges?

I think we need a bit of the positive characteristics that our past and present leaders have shown but most importantly we need a leader who has an entrepreneurial spirit, a socio-entrepreneurial impactful spirit. We as African’s are natural-born entrepreneurs…we need a leader who will use an entrepreneurial approach to create sustainable development and leadership in so doing promoting a culture of hard-working, ambitious young people to drive forward development. A leader who has innovative ideas and simply not just focussing on what has been done, but looking at what can be done. We need a leader who will deal with disparities in wealth that exist between the poor, the middle class and the rich. High on their specification will be better business and financial acumen, infrastructure, education, employment and better health services.

  1.  Specifically, how should that leader approach the top job in terms of sustainable development and reducing aid dependency?

I believe aid is still vital to Malawi for the next few years at least, but our president needs to really focus on the fruit of a stronger regional economic integration across the continent; and build economies of scale to enable Malawi and Africa to better compete in the global economy. Malawi seems to be attracting a lot of investors to the vast minerals in the country ranging from bauxite, gold, limestone (marble), monazite, niobium and uranium…then we’ve got oil and agriculture. The key aspect to ensuring the leadership moves away from aid dependency is to create a strong and efficient financial system that could support high levels of investment…also the need to eliminate the tax breaks these foreign investors have in the country as we are losing millions of US dollars annually.

Malawi can have a wonderful future. By strengthening its financial and legal systems respectively, and focusing on regional integration, Malawi has the potential to become one of Africa’s fastest growing economy by the end of this decade provided that political stability, social protection, quality education, private sector and good governance are implemented.

  1. Looking at the problems that have plagued the tobacco industry – which is our biggest source of export revenue– in recent times, what alternatives do you think Malawi has besides Tobacco, and why are they viable alternatives?

There is a major problem by relying on tobacco. Let us look at the bigger picture – tobacco farming is a major employer in Malawi where it employs 70% of the nations workforce – in terms of providing a living to the population it plays a big part.

The country does need to diversify and not only focus on tobacco as the international controls on tobacco are surely having or going to have an effect on the economy.

I think a strong emphasis should remain on agriculture produce such as tea, coffee, macadamia nuts, groundnuts, sugar, cotton, soya and timber. The potential for agribusiness is there but we need the right mentality in promoting good practice to increase efficiency and bring in investment and expertise to help scale up production but also go into agroprocessing, where higher prices for commodities can be achieved.

Infrastructure development is vital for Malawi’s economy to flourish. There is a need for better roads, airports and aviation, rail, ICT, water and sanitation.

Stronger focus on the extractive industries and corporate realisation of Malawi’s objectives in oil found in Lake Malawi. Mining currently accounts for only around 2% of GDP, with tobacco, sugar and tea remaining the main exports by value, but we all know the short and long-term potential of the mining industry if we play our cards right.

Tourism is another sector to focus on. This would bring the needed foreign exchange and foreign direct investment and importantly raise the profile of the nation as truly ‘the warm heart of Africa’. I do not know if you are aware but Malawi was recently crowned runners up in the 2012 Safari Awards “Best Africa Tourist Board” beaten by Kenya. This is definitely an important space.

12. Considering our troubled history with donors and funders such as the IMF and World Bank, how do you see Malawi progressing from this relationship in view of the criticisms these organisations have received in the media across the world?

Malawi, is still too fragile to sustain herself – as mentioned earlier I believe once the powers that be start developing the nation, attracting more investors and regional integration is in place Malawi will be on the right path to stand with the rest of Africa as partners and not rely on these international bodies.

13. How do you think the government is doing regarding managing Malawi’s natural resources?

Problems are there, such as issues to do with mining legislation. The main legislation governing mining is the Mines and Minerals Act 1981.

The Mines and Minerals Act 1981 states that companies operating in Malawi need to employ and train local staff but this is left at the discretion of the company, thus local workforce are often found to be losing out. There is lack of regulation, think of the people who are displaced by the mining companies? There is no protection for these people – regulatory framework for resettlement only requires compensation to be given for land, livestock etc…but nothing is in place to give those people back land of same quality. Most people living in villages where these mines are based do not own the land through purchase but through living there for generations thus when the mining companies come, these people are evicted and not titled to any compensation. Most importantly there is a lack of transparency – mining companies are not revealing their profits in line with expenditure and taxes. The mining companies are not required by Malawi government to reveal their spending in Malawi.  

14. Can the government do better to manage natural resources? If so how?

Government needs to address the points I’ve just raised and ensure something is done to curb this behaviour of secrecy. They need to tighten legislation, this will be achieved by revising the Mines and Mineral Act 1981 – I understand that this is being done.

15. What is your answer to increasing transparency and eradicating corruption which is plaguing most governments across Africa?

African governments need to be accountable to their citizens. The responsibility for dealing with corruption and transparency falls equally on all parties from governments and donors, to civil society and citizens. We all have to fight to ensure we can develop better leadership with the tools of good governance.

We have to remember, when we the people have information; we have the power to hold our leaders and governments accountable to improve the systems, tackle corruption and have transparency.

16. Any famous last words?

Let’s continue driving our country and continent forward. In the words of Kwame Nkrumah ‘’We face neither East nor West: we face forward’’.

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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