What does a Pro-Malawian Position on Foreign Direct Investment (FDI) into Malawi look like?

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Last week President Chakwera took part in a webinar hosted by Invest Africa. (https://investafrica.com/event/malawi-insights-for-investors-with-his-excellency-lazarus-chakwera-president-of-the-republic-of-malawi/ ). It was a good decision that minimally should show that he is proactive in attracting Foreign Direct Investment (FDI) into Malawi. However, there are some painful lessons from the past that must be learned.

I think as far as Malawians are concerned, one of the main concerns is how the Tonse Alliances policies of President Lazarus Chakwera in regards to attracting Investors will translate into tangibles that will positively benefit and impact people’s lives.

Specifically, people will be interested to know how The Government of Malawi’s (GOM) policy on FDI will affect them in terms of employment, environmental protection and a stake in the national wealth creation, not only for the short term, but in the long –term.

Besides these concerns, Malawians will want to know what level of transparency will be established to safeguard against and prevent the corrupt practices of past administrations whereby influential party cadres illegally benefitted from contracts awarded to foreign companies via backhanders and by charging investors “access fees”.

This means that President Chakwera would be best advised to structure his policies on FDI to focus on Inclusive Prosperity for all Malawians, as has been his theme in many of his speeches, especially now that with the COVID-19 pandemic there sadly are many people who have been laid off work, and whose livelihoods have been disrupted and are uncertain.

Thus, the Tonse Alliance Government must publish its position on FDI, including deliverables and should enshrine into Law Investor Responsibilities towards the Malawian people, including how such will be monitored, and the penalties for failing to abide by such laws. This is important to give confidence to Malawians that the Tonse Alliance, unlike previous administrations is truly serious about creating shared prosperity for all Malawians.

Let us put an end to the days when an investor would come to Malawi, invest a couple of hundred thousand dollars, use low-pay Malawian labour, utilise Malawian roads, and our weak labour laws, to extract raw materials (including minerals), export those raw materials abroad, refine and add value to those exports, then sell them at a large profit to reap tens of millions of dollars from their investment – while the people of Malawi do not benefit proportionally.

I am not against investors making money, far from it. But in a poor country such as Malawi, with so much want and poverty around, the benefit to Investor versus the benefit to Malawi should be proportional and acceptable. It is not right for an investor to walk away from their investment extremely rich, but pay little or no taxes, and critically, leave behind impoverished communities that have not benefitted or been empowered beyond the token gestures (bad roads that soon disintegrate, mediocre school blocks built hurriedly with little thought, no decent hospitals, no decent services, poor infrastructure, no pension plans for former employees, no facilities for children of former employees, etc.).

Another reason why things must change is that unfortunately some investors in Malawi have left behind problems including polluted rivers / lakes/ grounds, deforestation, environmental degradation including soil erosion, sick former employees and suchlike. This is simply unacceptable in the 21st Century and should not be allowed to happen.  

A well thought through legal framework will reduce the likelihood of such omissions happening in the future.

There are some lessons from what countries like Tanzania, Rwanda and Botswana are doing, which Malawi can learn from. There are even lessons from China! For example, Rwandair is owned 51% by the government of Rwanda and 49% by Qatar Airways (See this).   Similarly, Airtel Tanzania is owned 49% by the Government of Tanzania.

These companies contribute millions of dollars to the state coffers of these countries.

So how much more are such resources required for a country such as Malawi, where ~ 70% of the population live in relative poverty? I propose that as much as FDI is desired, and as much as it is needed, the deals that are signed can no longer be about only appeasing the investor with disproportionate ownership stakes, while the people of Malawi who are supposed to own the resources are left with next to nothing. This can’t possibly be right.

You can try and justify investor ownerships stakes of 80%+ or 70%+ of industry in poor countries whichever way you like, but with the current global levels of inequality, such type of disproportionate ownership stakes just don’t cut it.

FDI under the Tonse Alliance Government of President Lazarus Chakwera should be about how to ensure the Malawian people are stakeholders who actually benefit from investments into Malawi. Enough with the rhetoric of the past, right now show us how investment will actually pull people out of poverty.

So Government of Malawi FDI policy should be about protecting the people from the exploitative and corrupt practices of some companies, which leave far too few long-term positive benefits or sustainability in the areas they invest in.

Of course protection of Investor Rights and strong pro-Investor Laws are necessary, even essential to ensure that the private sector flourishes. But there has to be a balance in that equally Strong Labour Laws that protect workers should be established, complemented by Strong Environmental Laws and strong Consumer Protection Laws to ensure that Malawians are treated with dignity, and that there is fairness; to ensure that each investor receives written obligations / responsibilities towards consumers/ people living in the areas which will be affected by the FDI.

It’s not a zero sum game, so both groups can benefit from the investment.

Such a policy position is also important for social cohesion. For example if you go to any township in Malawi today, and ask people what they think about certain companies, you’ll find that some companies (and the senior people who work there) are disliked by large sections of the populations in those areas because those companies are perceived as exploitative and not doing enough to empower the local man on the street. Yet such companies benefit from locals – who buy their goods, or provide cheap labour. Clearly this is not a desirable situation.

So while Malawi is open for business, when an Investor comes to invest, be it into a resource, or to extract a raw material, it should be the Government’s clear position that the company will be expected to establish a development fund, where 10% of the profits must be invested, to develop schools, to build decent housing, hospitals, roads, transportation links, to provide electricity, high speed internet, & to provide scholarships & loans to children in the area including children of employees and former employees. All this must be in black and white, enshrined in the contracts which are signed with each investor. Otherwise there is a real danger, based on past experiences, that verbal promises some investors make will amout to nothing.

What everyone needs to understand is that historically, most investors who come to Malawi walk away having made a lot of money. Our weak laws, poor bargaining, corrupt officials and poor implementation of measures designed to protect against exploitation are the reasons why we have failed to benefit proportionally from the profits that FDI has generated the last 25 years or so.

Thus, if you really want to develop the county, then the state can no longer be a mere passive observer in terms of ownership stakes and management of major industries. Malawi should have a greater stake in industry, so that, as a developing poor country, the proceeds from these interests can help catapult us forward economically.

This means deals of 51% GOM ownership (like Ethiopia and Kenya are now doing), and Botswana has done for a long time, whereby the investor holds no more than 49% of the stake in each major interest / industry / company,  should be standard.

That can still translate into profitable returns of millions of dollars for the Investors. But the difference is that GOM, and Malawians will benefit proportionally than has been the case in the past.

Mind you, these are Malawian resources we are talking about, for Malawians to benefit from. So 51% ownership by GOM by 49% ownership to Investors is quite generous. In my view that is how you create a win-win position.

There will be criticisms to such policies, as has happened in other countries. But such criticism is levied by people who :-

  • are thinking only about themselves
  • do not understand where our country is coming from (and the level of poverty/ want in our villages)
  • believe incorrectly that Africans should be subservient or otherwise in deferment to what Western Capital dictates – including unfair geopolitical neoliberal policy positions on resources, agricultural produce & raw materials.

What the Tonse Alliance Government should do is to communicate to any interested investor that while Malawi is open for business, essentially they will be dealing with a deprived man, who has been taken advantage of and abused for a very long time; who has few resources and who needs every penny from those resources to move forward, to rebuild his ruins and to feed his young.

That deprived man will only do business on his own terms. And with investors who care beyond just about making profits.

Ultimately, there’s always another fairer, more ethical, more responsible, more empathetic and more compassionate investor down the road …

Practical Community led Activism

Now that the UK general election is over and done with, people this side of the world can get back to work, and begin focussing on the difficult issues facing Britain.
Among the terms that have been used by some commentators lately (often referred to together with the notion that the UK needs a federal system), is ‘Community led Activism’. This is probably very similar to the much talked about concept of a Big Society.

But what would Community led Activism actually look like? You hear it talked about, but few take time to really spell out how it would relate to everyday life.

I was curious, so after some thinking, probing about online, and studying various articles on the subject, I’m inclined to think any form of Community led Activism is incomplete without the following ingredients:-

(i) Change management strategies

(ii) Local ownership of change

(iii) Introduction of practice guidelines / best practices; and

(iv) Regular evaluation.

Community-led-ActivismBefore we open up churches as centres that are eligible to administer healthcare, before we begin community projects that serve communities while giving jobs to local people, and before our cities’ libraries also become art galleries, music venues-cum-coffee shops that operate for profit to raise money for communities, (as well as having free services for the most disadvantaged in society), before we increase local food production, before we have cooperatives in charge of local generation of green energy, before we bring back manufacturing from China, before we begin opening up parts of the greenbelt and brownfield land for building of affordable residential accommodation…

internetbefore we invest in information technology education to empower young people to be equipped with the necessary skills for the digital economy,..before all that and more, there has to be a general function that powers Community led Activism. Think of it as a macro level approach, underneath which everything else sits.

The best way to explain this is to look at a number of areas in which the above four ingredients may be useful.

Lets take Education for example. If you want to have devolution of powers from London to communities so that they get authority to decide on Education Policy as they see fit, there must be change management strategies employed in each of the communities concerned. This may come in the form of a new culture instilled at the devolved locality which establishes an effective management system to oversee, administer and evaluate the new policies, and move away from what hadn’t worked. Since the people who are already working in the environment are stakeholders, it is crucial that they are not maligned or resistant to the new proposals.  In fact Educational Authorities (or whoever is eventually given the responsibility to run the scheme) would need to embrace any new changes (and from experiences of the past this is not always easy, as Michael Gove’s stint as Education Secretary proved. See another link here).

Thus, change would need to be brought forward from the bottom-up (as opposed to top-bottom). Just as well, because Local ownership of change is also an essential ingredient. This is important since there will be localities which are happy with their current systems – which deliver desired or at least satisfactory outcomes, and so need not be interfered with too much. For such communities, Local ownership of change is empowering as they don’t have to do what they do not want; as will be for localities which have special needs by virtue of having different circumstances, and so which need slightly different solutions to the schemes/ solutions which others in the same country are adopting.

Similarly, for communities whose Education sector is lacking in some ways (be it in performance levels, funding or otherwise), if change is ‘owned’ at local level, then people are empowered to be able to find solutions that are tailored to the needs of their community. Since it is in the best interest of the community for certain results to be achieved, that change will be embraced quicker and more willingly if it is ‘owned’ at local level, and driven not by consultants hired by HQ, but by the stakeholders at local level.

But what about Introduction of practice guidelines / best practices? Well, lets take Job Creation & Employment legislation for example. Practice guidelines lay down the rules, to ensure there is uniformity across a region/ country. Employment legislation protects employers and employees across a jurisdiction (be it a state country or region) from abuse or unwarranted harassment. If a community seeks change in the labour market, for example to improve conditions for workers, then practice guidelines will be needed once that change is achieved (or even before) to ensure that the desired change is sustained, and is not short-term. Practice guidelines ensure consistency. They help everyone know what their particular roles are, and when such must be undertaken. And in relation to Employment legislation, guidelines at community level will enable employers and employees to know what their responsibilities are towards each other in the general scheme of things, without necessitating a change in the law at national / state level. This means if there is a problem in an industry that is concentrated in the North west of England (or say in a specific industry such as the hotel insustry), guidelines can be rolled out affecting the north-west (or that specific industry), without tinkering with the law at national level, thereby not interfering with the practice elsewhere.

Finally, there is the matter of Evaluation. This is important, because it means improvements or new policies can be reviewed, and if they are not doing as well, a better solution or alternative found. It allows the community to ask: Are we really doing as good as our research stipulated? And if not, why? It enables you to change course when new policies at community level are not having the desired effect.

You can apply the above ingredients to Residential property development, Healthcare, Tax policy, Welfare, Immigration, Pensions, Sustainability and Conservation… the list is endless, and I believe it is possible to make some good progress; even in a country which some people think is suffering a hangover of the politics of fear.

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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