The Eagle in a Storm

The following is a post (and ‘afterthoughts’) from the Facebook Page of Strive Masiyiwa, the Zimbabwean billionaire and  businessman wh is an inspiration to many Africans.

From reading the advice in his post, you have to wonder why many of our leaders in Africa are not thinking or approaching governance and development with such principles/ attitude:-

The Eagle in a storm (Part 2a).
__Changing our “wealth creation model.”

Ever since I started school, my teachers taught me that our country was “rich” because we had many minerals, and we’d recite the list of minerals. By the time I finished secondary school, I not only knew my country was “rich,” but that Africa itself was “rich” because we had so many natural resources.

Even though I didn’t study geology, I could almost tell you where all these precious minerals and other resources were found: oil, diamonds, platinum, gold, copper… in places like Congo, there were names of some things I couldn’t even pronounce.

__Yes, Africa is so rich!!!

As a young student, if I thought about what the global buyers of Africa’s natural resources then did with them, it was only ever a superficial thought. But I soon realized something didn’t add up…

__Sometimes it almost seemed that the “richer” a country, the poorer the people! But how could this be?

“1+1=2”! My primary school teacher drummed it into my head, right?

Then I got to secondary school and one day the teacher came in and said, “You know, there are situations when 1+1 does not always add up to 2.” ?!

“I’m here to talk about mathematics,” the teacher said. “It’s time to put away the arithmetic; this is senior school!”

“Senior school!”

I didn’t end my study of mathematics in secondary school. I also studied it at university where I majored in engineering.

What was it the Apostle Paul said about putting away childish things?!

Let me return to the wealth of our nations: I left university in the early 1980’s. In those days, it was not China that was rising into an economic giant, it was Japan! It was rising and overtaking every European country, until Japan was second only to America… It was so spectacular!

I first met a Japanese person when I was in my twenties and already working, yet I read every single book I could find about their prowess.

“Tell me about the minerals of your country?” I asked my Japanese friend.

“We have no minerals to talk of,” he said emphatically and proudly.

“What do you mean you have no minerals?”

As we talked about the Japanese rise, I was reminded of my lessons in mathematics!

And so I had discovered it was possible for a nation to be “rich” without minerals!

“We buy your minerals as cheaply as we can, and then we turn them into high-value products.”

“You mean you exploit us?”

“That’s not the way we see it. After all, what would you do with them if we didn’t buy them? Do you know what we do with your platinum or your oil?”

Then he added:
# “Our wealth creation model as a nation is not based on raw materials and minerals.”

“WEALTH CREATION MODEL?” What do you mean “WEALTH CREATION MODEL???”

Deeply troubled (even insulted) initially, I knew there was something more to learn if I avoided becoming emotional. The conclusions I reached changed the way I look at wealth, and totally empowered me. It changed my mindset.

The Tentmaker once said that our greatest battle is always in our minds… changing the way see things, particularly if we have held on to a certain perspective for a long time.

I hope it will do the same for you.

***

Afterthought 1. There’s a story told about a young Christian who was praying one day, and he asked God, “Why did you create the Universe?” And in his heart he heard God say to him, “Son, your mind is too small to contain my answer.” He’d ask the question again and again, making the subject of his interest ever smaller: “What about an ant?” Again the Lord answered him, saying, “Your mind is too small to contain my answer.” Finally frustrated, he picked up a peanut. Then (as the story goes) the Lord said to him, “let me give you a list of just 100 applications of the peanut that are yet to come!”

What do you know of the cocoa bean and its uses today? There are billion-dollar industries waiting to be created with the raw materials of your country, that the world doesn’t even know about today.

***

Afterthought 2. If you’re a school teacher, why not ask your students today to draw up lists of all the innovative things that are made from your country’s raw material exports.

__In just this alone, you will have taken the first step to changing our wealth creation model. If they’re in high school, ask them to draw up a list of nations that are very successful and yet do not have natural resources. In this you will change their mindsets about wealth creation.

***

Afterthought 3. If you’re a policymaker, ask yourself what incentives your country has put in place to encourage entrepreneurs, innovators and inventors to develop exciting new products and services, and to invest in industries that use your raw materials? What policies encourage investors to come in and set up industries that rely on those raw materials? What tax breaks will you give me if I set up a manufacturing business that uses the oil, platinum or cocoa of your country?

After suspension of oil and gas exploration licences in Malawi what happens now?

Anglo American Corporation was founded in Johannesburg in 1917 with £1 million (what today would have been £75 million, adjusting for inflation according to one inflation calculator).

AngloAmerican

It has since grown into a publicly traded behemoth with a market capitalisation of £31.2 billion and revenues of £29.3 billion (2013). It’s headquarters is now in London and the company is now known as Anglo American Plc, the fourth largest mining company in the world.

Although a net ‘loss’ of $961 million was declared in 2013, Anglo American is undoubtedly one of the big boys in the industry. To give you a scale of just how big they are, Anglo American Plc owns 85% of Luxembourg registered De Beers Investments, the holding company of De Beers, another prominent mining giant which is well-known in Southern Africa. But if that’s not convincing enough then how about this: Anglo American recently walked away from a gold interest worth $300 billion, after investing over $541 million it it. Apparently, the withdrawal is related to environmental risks, in particular the threat the Pebble Mine would pose to Alaskan Salmon (there’s even a campaign), although Anglo’s chief executive claimed the withdrawal was in fact a way of prioritizing “.. capital to projects with the highest value and lowest risks.”

Both Anglo American and De Beers have been criticised over their practices in Africa, including price-fixing, low wages (for Anglo American recently in Chile here) and lack of transparency. In particular, according to a Wikipedia entry:

In 1977, the company [Anglo American] demanded that the paper it owned, Rand Daily Mail, tone down its equal-rights support after exposing the murder of South African activist Steve Biko amid the subsequent government backlash. [words in parenthesis for clarity]

Further, a British charity, War on Want, published a report in August 2007 that accused Anglo American of profiting from the abuse of people in the developing countries in which the mining giant operates. According to War on Want:

“in the Philippines and South Africa, local communities threatened with Anglo American mines have faced severe repression in their fight to stay on their land, while in Ghana and Mali, local communities see little of the huge profits being made by AngloGold Ashanti but suffer from fear and intimidation and from the damaging impact of its mines on their environment, health and livelihoods”

In response, the company subsequently published a report defending itself and disclosing its finances.

**************

Malawi’s first president Dr Hastings Kamuzu Banda could have begun a state owned mining company in Malawi in the late 1960’s. He could have hired specialists from abroad, bought equipment from Britain or the US, begun prospecting for minerals, and by 1970 laid a foundation for a functional mining industry. The technology was available, and when Malawians had been travelling to South Africa in their thousands to work in the mines, labour would not have been a problem.

Banda didn’t begin a mining company. Instead he focussed on agriculture, which traditionally does not reap large profits as the sort which mining companies the likes of De Beers and Anglo American have been known to reap.

That decision could be a contributory factor further explaining Malawi’s economic woes today. While others were investing in assets and initiatives having huge long-term yields, Malawians were dabbling with agriculture and tobacco.

But to give him credit, while Dr Banda could have thought mining was not a priority to the newly independent country, he must have known that Malawi didn’t have enough capital resources to waste on ambitious projects whose very returns were unknown if not a gamble?

Further, having just broken away from the Federation of Rhodesia and Nyasaland, it’s understandable that while Britain could have been willing to extend Malawi a line of credit, as single-minded as Banda was known to have been, it’s inconceivable to think that he would have wanted to be constrained by such kind of favours from the very same people he so vehemently denounced. As he once declared: “We have no minerals. The soil is our gold mine”. In any case, what did a medical doctor who barely 10 years previously had been running a clinic in London know about the mining industry of the 1950’s and 60’s.

Having said this, would Dr Banda have started a state-owned mining company if he knew what treasures lay beneath the surface of Malawi’s geology? If he knew the value of such treasures on the international market?

Especially since there was information available as early as 1966 as to the Mineral deposits and mining potential of Malawi, according to a research paper titled MINERAL RESOURCES OF MALAWI AND MINING POTENTIAL by Rodney Mshali (The Society of Malawi Journal Vol. 62, No. 2 (2009), pp. 27-35 published by: Society of Malawi – Historical and Scientific ). Banda could have decided to take the risk if he wanted to.

Mineral Deposits

**************

Whichever way, it’s not my place to make a determination on Dr Banda’s judgement at this time.

But what does all this have to do with the current mining landscape in Malawi?

Well, as can be seen in the following links in Zambia, Chile, South Africa and Ethiopia , some mining companies have been known to be a menace to the countries they operate in. Issues of ownership, corruption, tax evasion in the form of profit shifting, low pay and poor working conditions, and of environmental degradation are often always lingering. In Malawi, recently, it has emerged that Paladin was considering to discharge ‘contaminated’ sludge kept in a dam near its Kayelekera mine into Malawi’s rivers systems for fear that if they did not do so, the rain season would cause their dam to overflow.

Thus, when news broke just under two weeks ago that the government of Malawi had suspended all oil and gas exploration licenses on Lake Malawi, so as to allow government to scrutinise and review each Licence that was issued or signed, I didn’t really know what to make of it. After all,  Malawi has had its fair share of sorry episodes of bad contracts married with irresponsible management, with the Paladin saga at Kayelekera. Although appearing diligent, uncovering any such lax agreements will just remind us all how deep in muck the country really is. It will not be a cause for celebration.

So then, what will the government do?

If they plan to review the oil exploration licenses in all good faith, and if necessary use legal mechanisms to resolve any indications of foul play -including unfair or prejudicial contract terms that do not benefit Malawians; if they plan to bring the miscreants to justice, then the suspension is a noble move.

In addition, the government of Malawi could work with charities [such as SHERPA (France), the Center for Trade Policy and Development (Zambia), the Berne Declaration (Switzerland), l’Entraide Missionnaire (Canada) and Mining Watch (Canada) ] which in 2011 filed complaints against mining companies Glencore International AG and First Quantum Minerals Ltd, to the Swiss and Canadian National Contact Points (NCP) for violating the OECD guidelines for multinational enterprises including for Tax avoidance in Zambia.

However, if the suspension of oil and gas exploration in Malawi is a veiled attempt at ‘rent-seeking’, as is rumoured to have taken place not only during Bingu Wa Mutharika’s regime, but also during the People’s Party administration, then it would be unfortunate because the government would have lost an opportunity to harness the resources that Malawi has. DPP would have lost a chance to show transparency.

One more thing; how can Peter Mutharika be sure that the value of assets or mineral resources declared by Oil companies interested in prospecting, or already prospecting is accurate, and not under-declared/under-valued ? For example, if the actual value (or near estimate) of viable crude oil deposits under the basin of Lake Malawi was US$400 billion, what is to stop the Oil companies holding the exploration licenses from misinforming the government that they had found only US$100 billion worth of confirmed deposits under the lake? Especially when the government was unable to verify those figures?

Wouldn’t an independent state-owned Mining company, that had its own equipment, and that owned a stake in each exploration site, and that was jointly involved in the exploration, so as to be able to verify the findings by its own independently undertaken mapping and surveying reduce such a risk?

Finally, it goes without saying that for them to be successful, any state-owned organisation (including parastatals) should be run and managed by people who by merit are fit to do so, and not by public appointees with little or no experience in the relevant technical field or area.

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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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100 Voices: No 3

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My next guest is an Accountant and someone who I have known for many years.

Mr Lusayo Mwalilino, thank you very much for taking the time to do the 100 Voices interview.  But before we begin, could you please take some time to summarise your background?

My name is Lusayo Mwalilino, I am an accountant, currently working as an auditor, in Lilongwe. I come from Karonga, bachelor, challenge addict, some say I’m extremely cool, but that’s their opinion… 🙂

  1. As a Malawian, how important is Malawi’s Socio-Economic stability to you and your family? – Malawi’s Socio-Economic stability is very important to me because it gives me hope for the future and makes it easy for strategic planning, but most importantly I think it makes it possible for one to realise their full potential in such an environment.
  2. After nearly 50 years since independence, what visible progress do you think Malawi has made since independence, and in your view, what pressing challenges remain? In view of those challenges, what do you think is the role of government and the people in tackling those challenges? – After nearly 50 years , there has been  some  general improvements in the country’s  infrastructure such as roads, hospitals, schools, introduction of democracy, improvements in  ICT, although it should be mentioned that the infrastructure mentioned above is mostly in poor condition and there is still so much that needs to be done in terms of progress as a country.
  3. What modern and progressive ideas in other foreign countries have had the greatest impact on you, and why? – I have not lived outside Malawi however I have read  and heard  of modern & progressive ideas in other countries. Most countries moved from developing to developed economies by moving from  agricultural based to industrialised economies – making goods that they were able to trade on the world market, also up there is putting ones country first, collective patriotism.
  4. What lessons do you think Malawians and the Malawian leadership can learn from those ideas? – Malawians need to revolutionise their agricultural methods for example sophisticated irrigation methods and extensive R & D in agriculture, manufacturing of fertilizer etc. In addition to this revolutionise tourism, this could then fund a much-needed thriving industrialised economy.
  5. In your opinion, what is the greatest sign of improvement or development that has occured in Malawi in recent years? – I live here in Malawi so I would say the way the HIV/AIDS has been managed is quite remarkable, also improvements in ICT, it seems more people are using the internet, it also seems more people have access to clean water, not sure what the stats are though.
  6. What has struck you the most as the biggest sign of stagnation or regression? – The biggest sign of stagnation is just generally the state of the economy and of course the greedy and corrupt leadership.
  7.  Malawians will be going to the polls in 2014, to elect a new president. In your view what kind of leader does Malawi NEED, considering the country’s current challenges? And specifically, how should that leader approach the top job in terms of creating sustainable development and foreign reducing aid dependency? – Sometimes it feels like African countries are going through perpetual cycle of ‘elect and regret’; however one must remain hopeful, I believe Malawi needs an exceptionally intelligent, selfless, driven leader who is truly passionate about making changes to the country.
  8.  As you know, Tobacco is Malawi’s biggest source of export revenue. Looking at the problems that have plagued the tobacco industry in recent times, what alternatives do you think Malawi has besides Tobacco, and why are they viable alternatives? – Other viable alternatives are; cotton, coffee, supplying fresh bottled water to Middle Eastern countries, rice, fish exports. Some of these are already being done but could be done in a more sophisticated way, and on a larger scale.
  9.  Considering our troubled history with donors and funders such as the IMF and World Bank, most recently when Bingu Wa Mutharika was president, 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 cannot win by depending on these institutions, which do not understand our economy, and may advise us with ulterior motives. Our leaders should strive to think of what is best for their country and not just adopt a herd mentality, fiscal discipline is key.
  10.  We now know that Malawi has some precious minerals, including Uranium, possibly oil and other natural resources. How do you think the present government is doing regarding managing Malawi’s natural resources? – I would give the present government a  4 out of 10, not very impressive. Botswana on the other hand has done well in managing their minerals [see sources 1, 2], we could learn from a lot from them.
  11.  In your view, can the government do better to manage natural resources? If so, how can it do better? – Yes they can, basically by making sure the interest of the country , not an individual or any mining organisation  are put first, come up with mining contracts that ensure this is achieved, as well as thorough reviews of these agreements. Learn from other countries that are doing it successfully.
  12. What is your answer to increasing transparency and eradicating corruption which is plaguing most governments across Africa? – By putting in systems and controls that prevent corruption from occurring, as well as a system that annually reviews progress being made on corruption and transparency , from the highest office in the land to the lowest paid civil servants  by an  independent group of audit firms. This could mean amendments to the constitution.It seems possible in theory but may realistically, be extremely hard to implement, because as long as there is abject poverty, corruption will exist, which gradually becomes a culture, even at organisational level changing an organisations culture is a difficult task, it could minimise it though.
  13. Any famous last words? We cannot let the easy seductive funk of despair, negativity and doubt undermine the critical forces for change; hope, faith and action  –  Cory Booker

100 Voices is a collection of reflections, views, opinions, ideas and thoughts by Malawians across the world, regarding the past, present and future of Malawi.