Another reason why Africans should own their own resources

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Imagine an African continent…” – Kofi Annan

Among the comments underneath the video on YouTube are:

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

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

and

3. “Bless u Papa”

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

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

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

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

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

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

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

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

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

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

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

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

Similar:

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

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

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

4. Scramble for Africa

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

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