Displaying items by tag: Business Day
INTERNATIONAL mining company First Quantum has paid more than R7bn in taxes to the Zambian government over the past few years. It has allocated about R70m for infrastructure in areas where it operates and is setting up an agricultural programme to support 400 farmers. It will also be the first foreign mining company to list on the Lusaka Stock Exchange.I hold no particular brief for First Quantum, or for mining companies, but it is important to balance the narrow debate on nationalisation that tends to paint resource companies as thieves and governments as victims of foreign greed. The nationalisation debate raised its head at the recent mining conference in Zambia. Government officials insisted they would not go down that road again but it i s clear the issue has not been put to rest by Zambia’s recent private sector- driven economic success.
The call for state ownership of mines still lingers, fuelled by the knowledge that mining companies are currently making huge profits but paying relatively low taxes.
Ironically, the reduced state take- off is itself a legacy of nationalisation. It is the result of generous privatisation incentives the state had to build into development agreements with foreign companies to get them to take expensive and deteriorating assets off its hands after its own dismal failure to make them work.
According to the World Bank, mining contributions to Zambia’s tax revenue are about 5% of export revenue , compared with between 25% and 40% elsewhere in the world. This is arguably a direct consequence of nationalisation rather than an argument for it.
But tax incentives have a limited life span and eventually those mines will start to pay hefty taxes. And new investors not tied into those historical agreements will pay full taxes sooner rather than later if high prices, which allow them to offset start-up costs more rapidly, persist.
The nationalisation debate also does not take account of skills and technology transfer by global companies, which is equipping Zambians with the ability and experience to build their own mining companies. Corporate social responsibility budgets are growing as community demands become louder, and infrastructure spending to enable mines to operate obviously benefits communities in mining areas.
In resource-rich northwestern Zambia, hundreds of schools, houses and shops are being built in the village of Solwezi on the giant, privately operated Lumwana and Kansanshi mines, providing many opportunities for Zambians.
Foreign investors are also stepping in to build schools, health facilities and agricultural knowhow in rural areas — something the government has paid insufficient attention to .
While the mining companies may not be creating the employment numbers Zambia needs — about 50000 Zambians are employed on the mines — thousands of jobs have nevertheless been created over the past decade.
And huge mining investments and activities are increasing economic activity — and drawing in investment in other sectors — increasing the state’s revenue from downstream taxes such as income tax and VAT.
But despite sharply increased foreign direct investment, Zambia remains a high-cost and uncompetitive operating environment. For example, labour productivity on Zambia’s mines is about seven times lower than that of Chilean workers in the copper industry. There is a high reliance on imported inputs throughout the chain of business because of the poor industrial performance resulting from an unsupportive policy environment. Transport costs are high and border delays place an estimated 25% surcharge on transport prices.
This lack of competitiveness is not about revenue as much as it is about devising better policies and more effective strategies to allow the government, in partnership with the private sector, to build a more sustainable and diversified economy.
Part of this policy upgrade has to be about greater transparency from the government on how it spends revenue derived from investors from mining and other industries.
Zambia is a signatory to the Extractive Industries Transparency Initiative and is likely to become a compliant country later this year. This will not only push mining companies into greater disclosure, it will also make the state’s revenue receipts and expenditure more transparent.
That should help to inform a proper national debate on the issues that does not rely on narrow populist arguments and finger-pointing that serves only to deter foreign investment.
IS AFRICA’s “alphabet soup” of regional economic communities (RECs) slowly becoming less complex and confusing? Currently, 27 African countries are members of two of Africa’s 14-plus regional blocs, while 18 countries are members of three blocs, with just a handful belonging to just one. This flies in the face of grand plans in the 1960s to have a United States of Africa. But the continent may be seeing some movement towards that heady ideal, with talks at an advanced stage on the creation of a free trade area (FTA) stretching from Cape to Cairo.
Plans to harmonise three of the bodies — the Southern African Development Community (Sadc), East African Community (EAC) and Common Market for Eastern and Southern Africa (Comesa) — were given impetus at the heads of state summit in Johannesburg at the weekend.
The move was sparked by concern about the undue trade costs and bureaucratic complexity caused by the overlapping REC memberships of states from North to southern Africa. In 2001, Comesa and Sadc established a joint task force to look at harmonising the RECs and, in 2005, the task force was expanded into a tripartite initiative to include the EAC. Heads of state gathered in Uganda in 2009 to politically endorse the FTA plan.
The Johannesburg meeting was another step along the road.
The initiative has been criticised for slow progress, which fails to recognise the hard work being done behind the scenes by the technocrats to build a framework for this ambitious plan. The complexity of the detail involved means the technical process has fallen behind the political process.
But it is important to press on. Even though Sadc and Comesa have not yet maximised the benefits of regional integration, and both are beset by nontariff barriers even as the tariff walls come down, the fact remains that Africa needs to build bigger markets to offset its many trade disadvantages.
The FTA is designed to be a win- win situation for all concerned. Importantly, it aims to reduce trade barriers and costs and increase pitifully low intra-African trade volumes.
A larger regional market will be more attractive to funders of infrastructure projects and it will enable greater co-operation in areas such as agricultural development and the formulation of common regional positions and strategies in multilateral and international trade forums. Proponents of the initiative say other crucial benefits will emerge.
For example, it is likely to spark the development of national and even regional industrial policies, which are currently absent, to allow the development of comparative advantage and value addition in an environment of increased competition and reduced protection.
The lack of industrialisation in most African countries has created an undue dependence on trade taxes — more than 30% of state revenue in most cases — and countries will now be pushed to search for new ways to boost revenue . This could include greater policy support for the private sector to grow the corporate tax base.
In a second phase of the initiative, issues such as building regional competition policy, the free movement of people and trade in services are likely to be put on the table. Critics argue that it would be better to ensure the more efficient working of existing building blocks before adding a new layer of regional bureaucracy to the mix.
Nevertheless, the process is under way and it needs all the support it can get in recognition of the long-term benefits it will have for the regions concerned, and, ultimately, for the continent as a whole.
For the politicians, putting their signature on the deal is the easy part. African states have a poor track record of implementing the agreements they sign up to so it is crucial that leaders really believe in the FTA’s benefits and that the weekend’s back-slapping and statements of support were not just political posturing. And there will be many tough calls to make.
The support of the large economies in the FTA — SA, Kenya and Egypt — are especially critical to the success of the initiative. They need to be its champions. While they will gain from preferential access to each other’s markets, they will also have to make sacrifices.
It is where these sacrifices intersect with national interest that will be the true test of their commitment.
DOZENS of international fund managers gathered in a Harare hotel this month to watch Zimbabwean companies parade their wares. They were not disappointed. Myriad PowerPoint presentations showed steep curves of growth, production, volumes and many other measures of economic success — albeit off a low base. The event was Imara Africa Securities’ Zimbabwe road show, which aims to show the world what the country’s companies have to offer investors.Emerging from the economic black hole that preceded “dollarisation” of the economy in 2009, Zimbabwean managers have moved quickly to rebuild operations and take advantage of improvements in the economy.
A key constraint has been the lack of liquidity in the market and limited take-up of rights issues on the Zimbabwe Stock Exchange. There are other problems, not least high political risk. Nevertheless, the historical underlying strength of Zimbabwe’s private sector was clear at the Harare event. Rather than waiting for substantive political change, companies are finding innovative ways to build capacity, court investment and grow market share.
Despite the battering of the past decade, Zimbabwe is home to a growing number of African conglomerates and multinationals — beneficiaries and drivers of the continent’s growth. A 2010 survey by the US-based Boston Consulting Group claimed that investment by African companies had increased by more than 80% a year over the past decade. Regardless of the accuracy of this figure, it is clear that Africans are now grasping the opportunities foreigners have exploited.
Although South African companies and their cross-border subsidiaries still dominate the proliferation of lists ranking sub-Saharan Africa’s companies, new names are emerging. One of these is Nigeria’s Dangote Group, a conglomerate that sells everything from salt and pasta to cement. Its fortunes have been boosted by local protectionist measures but it has used this advantage to expand regionally. Another is Nigeria’s oil and gas company, . The aggressive expansion of Nigerian banks has swamped West Africa; the economic giant is now the biggest investor in Ghana outside the resources sector.
In East Africa, regional integration drives indigenous private sector growth. A strong regional framework under the East African Community has seen banks, retailers and hotel groups from Kenya lead the charge into neighbouring member states.
A significant driver of African private sector growth is private equity. According to Ernst & Young’s annual survey of merger and acquisitions, last year there was a 406% jump in total proceeds of initial public offerings (IPOs) across Africa. Although this was dominated by just four South African deals, there has been IPO activity on other large African stock exchanges. The emergence of an increasing number of well-capitalised dedicated African funds is driving portfolio investment in African stocks. The African diaspora is also playing a role — many international funds and investment banks are headed by Africans, who have a nose for good investments in their former homes, and some are bringing their professional skills back to build African companies. African parastatals are also building international operations, particularly national oil companies such as Angola’s Sonangol, and Sonatrach in Algeria. SA’s parastatals have not fared well in Africa and most have pulled back to focus on local operations.
West African banking group Ecobank Transnational, with operations in 29 countries, reflects the view of its CEO, Arnold Ekpe, that African- owned companies have a competitive advantage on the continent as they understand Africa’s particular risks better than foreign investors. This is changing as new investors from other developing countries invest in Africa as they, too, understand the nature of such markets given the similarity of Africa’s typical operating conditions to their own.
SA is a market most African companies have avoided due to stiff competition and high barriers to entry.
The growth of African conglomerates presents new competition to SA’s companies in other markets. But it also provides them with a better potential choice of sound acquisition targets to help them fend off rising competition from outside the continent.
SOUTH African companies investing in the rest of Africa have had a relatively easy time of it if one considers the rigours US retail giant Walmart has been going through in SA recently. Our local multinationals have been combing the continent’s markets looking for merger and acquisition targets, mostly unencumbered by the kind of competition law considerations Walmart, and others before it, face here.
Only about 25 African countries have competition bodies and it is taking time for the concept to get traction. Earlier this year, the 23-country African Competition Forum was launched in Nairobi, which is likely to provide impetus to such policies.
It is worth noting that the very arguments the trade unions in SA are using to forestall Walmart’s ambitions in SA could equally apply to our retailers investing in other African countries, where manufacturers struggle to compete with SA’s economy-of- scale pricing and supply chains.
Although six African countries approved the Walmart merger with , the nature of the subsequent debate on the issues in SA may influence their thinking in future deals of this sort. Already, the conditions the Namibian authority imposed, overturned in court on appeal, reflected those the South Africans want.
Given that SA has the deepest competition experience and institutions in Africa, it is likely that arguments and judgments here may inform other countries’ attitudes to the same issues. For example, the hostility towards multinationals is prevalent in many other nations, who see foreign companies as a threat, rather than a benefit, to their economies.
There is also a tendency to see protecting jobs as being more important than promoting their growth by making economies more competitive in order to attract investment, which in turn creates jobs if the environment is conducive.
Local procurement is a growing issue in the rest of Africa, despite the fact that most industry outside SA is not yet able to supply goods at the same price and quality as those provided by the South Africans.
There are other decisions made by SA’s competition authorities that may have anticompetitive reverberations in other African countries. The unfortunate wording of the Competition Commission in blocking the R170bn tie-up between MTN and India’s Bharti Airtel — that it would lead to MTN losing its “national character” — sets an unfortunate precedent that could make it easy for governments to protect local monopolies from foreign competition.
The onerous and costly conditions imposed in SA in the takeover bid by Japan’s Kansai Paint of local company Coatings, which included a three-year freeze on retrenchments and a 10-year commitment to manufacture in SA and establish a local facility within five years, may also resonate with African governments.
One of the key issues the Walmart case raises is the link between the competition authorities and the governments’ own agenda. Critics have pointed to SA’s government using the tribunal to reflect its own growth plan considerations rather than the interests of consumers.
Increasingly, critics argue that SA is mirroring some of the bad practices on the continent. It is worth noting in this regard that it has been governments in Africa that have been the most uncompetitive force in their economies for various reasons. These include the tendency to crowd out the private sector with inefficient parastatals, skew the playing field to favour local monopolies and use licensing and regulation to protect the private interests of top government officials. The issues in SA are different but are still linked largely to government.
To date, competition policy in the rest of Africa, where it exists, has been viewed positively as a vehicle to reduce risk for both local and foreign companies and to level the playing field.
But there is an outside chance the well-publicised arguments in the Walmart case could get competition authorities to look differently at similar potential deals in their own countries . This could have repercussions for South African companies, who already face anti-South African sentiment in some African markets where their dominance has created resentment among competitors — and victims.
ONE of the features most commonly associated with doing business in Africa is political risk. This is usually offset by mention of the big rewards that accompany such risk-taking. Risk assessment itself has become a growing business on the continent.
As African countries diversify their economies and globalise, the risks of operating in them are not only transforming but are becoming more diverse, complex and, in some cases, unpredictable.
Trade experts say that, as trade barriers fall, nontariff barriers quickly take their place and are more insidious as they are difficult to foresee and surmount. Likewise, as governments increase economic freedom through reforms and policy adjustments, there are often unintended or negative consequences, which may be fixed using yet more policies and, frequently, new regulations.
Mostly, engagement with the private sector on these barriers is limited despite the private sector being the main target of regulation and new policies, which can have major implications for long-term planning and corporate growth in African markets. War and political instability account for a significant portion of perceptions of political risk, certainly from outside the continent, given the high-profile coverage of such events by media.
Africa will witness 17 elections this year; each has the potential for political instability — or worse, as Côte d’Ivoire exemplifies — with potentially large opportunity costs for the countries concerned. Côte d’Ivoire, a large economy, has lost a decade to civil war during which much of Africa has prospered due to the commodity boom.
I asked the president of the African Development Bank last year what he considered Africa’s biggest future challenge: political and governance risk, he said, without hesitation. A few weeks later, violent regime change took place in the streets outside his office in Tunis, the bank’s temporary home.
At the time, the bank had been awaiting the outcome of the upcoming Ivorian election as it was considering relocating to its original base in Abidjan. However, as revolution erupted across Tunisia, almost simultaneously Côte d’Ivoire descended into violence over electoral disputes.
Politically driven violence in Côte d’Ivoire was more predictable than that in North Africa, many have argued, given its state of civil war for about a decade. Ironically, long dictatorships may be good for business given continuity of relationships with leaders and deals done to safeguard investments. But there is an inherently high risk in a power transfer, particularly where succession planning is nepotistic, dynastic or absent — not uncommon in Africa.
The basis of African conflict is often ethnic and sectarian differences dating back generations and, increasingly, political battles over state control and resource ownership. There are more insidious drivers of conflict building up now, such as rapidly rising inflation.
Although overt political risks grab the headlines, a recent survey by the Multilateral Investment Guarantee Agency shows that the biggest political risk concerns of multinational corporations in developing countries are not war, civil disturbance, terrorism or even expropriation — but breach of contract and adverse regulatory changes, regarded as at least five times more risky for business than conflict.
Political instability has consequences for investors but there are avenues for outside parties to intervene in solving these kinds of problems, whether regional, continental or international. Much more difficult to change, it seems, are internal issues over which government officials have total control. Breach of contract and regulatory changes are not expensive or time- consuming to fix, but what is required is something that is often in short supply: the political will to make changes that might fly in the face of entrenched interests, often of certain officials themselves.
It is necessary for Africa to build a culture of engagement with the private sector and other relevant parties to ensure regulations and policies do not have negative unintended consequences. Most importantly, dealing with these risks requires the development of strong institutions to ensure continuity of policy and systems, particularly when the political battles sweep away officials, parties and even governments.
WHAT could a tiny patch of desert in the Middle East have to offer Africa, an area many times bigger, with every type of resource one could imagine? The question arose at the annual investment forum of the Common Market for Eastern and Southern Africa (Comesa) hosted by Dubai in April where the tiny emirate pledged to assist the regional bloc with its growth and development.For one, Dubai is a highly organised, nimble economy with an eye on the chance — something African countries have failed to achieve thus far.
Despite producing little of its own, Dubai’s balance of trade with the 19- country Comesa bloc is in favour of the city state. The volume of non-oil trade between Dubai and Comesa in 2009 was about R18bn, while exports and re-exports to Comesa countries were valued at R32bn.
Dubai has a (mostly foreign) population of less than 2-million people; Comesa is a region of 430-million people that stretches from Egypt and Libya in the north down the east coast of Africa right down to Swaziland. And Dubai is not just trading with African countries, it is also a growing investor along with the rest of the United Arab Emirates (UAE), which it dominates in terms of gross domestic product (GDP) and population numbers.
UAE investment in African countries, including Comesa states, totalled $5,5bn last year, up from $4,7bn in 2009. Since 2003, 67 UAE companies have invested in 115 projects in Africa. The biggest investor by far has been Dubai World Africa with about 30 projects in Africa, including port investments in Senegal, Algeria, Mozambique and Djibouti, made before the western financial crisis almost topped the state giant. Last year, there were 16 investments from the UAE, mostly in Egypt, Libya and Sudan, in real estate, oil and gas, the financial sector and consumer goods.
Dubai’s GDP makes up the bulk of the UAE’s of nearly $239bn. The closest Comesa country in GDP terms is Egypt at about $163bn. Dubai’s GDP per capita is R40000 — much higher than any African country.
Dubai, like Singapore, continually reinvents itself to ensure it remains a global hub and tourism attraction. Instead of being beaten down by the drubbing it took from the financial crisis, it is planning greater diversification of the economy and is reviewing all laws that affect the private sector to ensure it remains a cutting edge business environment.
It has made a great success of free zones, its international financial centre and IT cities and it rates highly in global surveys of the best cities in which to live and work.
Of course, it has some benefits that African countries do not. One is a lack of nationalism due to its large foreign population. It is also not encumbered by the demands of democracy, being effectively run by the ruling families and political structures established by them (which is, of course, not far from the model in some African countries) and it is unfettered by labour laws.
But it has also focused on a few areas of excellence to build itself. One of these is a world-class logistics backbone, which has enabled the hub development to succeed. It is trade, not oil, that has put Dubai on the map.
The UAE is increasingly focusing on Africa and Dubai’s hosting of the Comesa event provided a perfect launchpad to leverage more opportunities in Africa.
Dubai has positioned itself as an international gateway to Africa, challenging SA’s ambitions to capture this role for itself.
But with all the hype these days about it being the land of opportunity, Africa remains a difficult place in which to do business, hampered by inefficiency, lack of political will to build world-class economies and a surfeit of politics. The continent is awash with plans and dreams but progress is slow. Regional blocs such as Comesa are not quickly seeing the benefits of creating economies of scale.
Despite the size of Dubai and its unique economic structure, there are lessons for African countries from the model created by this desert city. Chief among them is to identify core areas of advantage and excellence and leverage them to the hilt. Another is to move beyond endless discussion of grand ideas, plans and potential and make African economies productive and globally competitive
WITH all eyes on Libya — and the spiralling cost of fuel caused by the closure of more than half of that country’s oil production — last week should have been an auspicious time for the release of a report on global oil companies by two international watchdogs.Transparency International and the Revenue Watch Institute’s report contained the results of a survey of the international oil industry, which fingered several national oil companies for poor disclosure about issues affecting revenue distribution, information about company structure and anticorruption programmes.
Of the eight firms that fared worst, five were African state-owned companies. The Nigerian National Petroleum Corporation (NNPC) was at the bottom of the list. The others were Angola’s Sonangol, Algeria’s Sonatrach, Equatorial Guinea’s GE Petrol and the Republic of Congo’s SNPC. They were joined at the bottom by, among others, Russian oil company Gazprom and the China National Offshore Oil Corporation, both of which are active in Africa. But Libya’s National Oil Corporation was not measured.
Neither was PetroSA nor a number of other African national oil companies, though the report says the survey of 44 companies covers 60% of global oil and gas production.
The survey’s categories covered reporting on anticorruption programmes; providing information on company structures; and disclosure of financial and technical data. It was designed to reflect the commitment of companies to stopping misappropriation of revenue and to providing information that makes governments more accountable to their citizens. NNPC, Sonangol, GE Petrol and Sonatrach all scored zero in reporting anticorruption programmes, while Nigeria also scored zero on company information disclosure.
The survey unfortunately reinforces the negative perceptions about links between corruption, secrecy and oil in Africa. This is disappointing given that there have been improvements in Africa’s national oil companies over the past decade. Transparency has improved in the wake of global anticorruption initiatives and old monopolies are being broken by growing competition.
Some national oil companies are being reformed. NNPC faces extensive restructuring. Many states in Africa, including SA, Mozambique, Algeria and Mali, have set up independent licensing agencies to separate the process from governments and their companies. State-owned oil companies in new producers such as Ghana and Uganda are expected to lose the baggage of their predecessors and some countries, such as Niger, have built strong public accountability into their constitutions. And national oil companies are increasingly spreading their portfolios across national borders.
With the marketing of Africa as an increasingly attractive resource destination for investors, its oil and gas sector is benefiting from a wealth of new private capital — and a growing number of foreign state oil companies. Already more than 30 of the latter are operating in Africa. But as the survey shows, many African oil companies still have bad habits, making them less competitive in their own backyards. They are well below the competitive standards of their counterparts elsewhere. The longer they take to get their houses in order, the more they are going to fall behind.
The assets and portfolios of foreign national oil companies are larger than those of African national oil companies on the continent outside their own countries, which shows the assets are being snapped up. If Africa wants to keep ownership and control of its resources, it needs to keep up. As Duncan Clarke, CEO of African oil and gas advisory firm Global Pacific & Partners, said of foreign national oil companies in Africa: “They are eating Africa’s lunch. If the Africans are not careful, they will eat their dinner as well.”
Renaissance fund’s random spending should be more strategically focused
IT WAS at a conference on agriculture in Vietnam last year that I heard about SA’s involvement in a food project in Guinea. I attempted to find SA’s high commissioner in Hanoi at the event to ask him: why Guinea? Surely we had more pressing priorities closer to home or in countries more strategic to SA? But it turned out he had not made it to the event.
However, a quick check on the website of the Department of International Relations and Co-operation shows the South African taxpayer is contributing R172m to support the project — a transfer of skills and technology by Vietnam to a rice-growing project in the West African country.
The money includes R5m for the construction of a museum in Kindia, a small military base two hours’ drive from Guinea’s capital, Conakry. Then president visited the base in 2006 because of its historical significance. “The first members of the revolutionary political parties that went into exile in the early 1960s received rudimentary training at the camp,” the department says.
This brought to mind another pet political project of the Mbeki era: the construction of a library in Timbuktu to house valuable manuscripts — R20m was budgeted for this but it eventually cost nearly three times that.
SA spent another R29m to rescue the African Cup of Nations tournament in Mali in 2002 on the grounds that its success would assist SA’s 2006 bid for the Fifa World Cup.
All this money comes out of what is known as the African Renaissance and International Co-operation Fund, a “slush” fund for pet political projects, relationship-building and loans to friendly states, established in 2000 to promote economic co-operation between SA and other countries.
Spending decisions appear to be random. For example, the fund committed R14m for a regional gem institute in Madagascar (now on hold because of that country’s political turmoil), nearly R12m for SA to host a pan-African women’s conference, and R30m on upliftment projects in Western Sahara, which is fighting for self- determination from Morocco — a cause that has strong backing from SA.
Listed among expenditure items is a whopping R10m to cover the costs of SA’s representatives on the Southern African Development Community monitoring team for Zimbabwe’s 2008 elections and R3,5m for the monitoring of the one-man runoff after the poll.
A department evaluation report on the funding says: “Zimbabwe elections successfully held on 29 March 2008″. It would be interesting to see how much SA’s support of that disastrous election has since cost it in general. It emerged earlier this year that more than R770m of the fund’s R1,2bn in disbursements since 2004 went to countries with human rights abuse records, including Zimbabwe and Guinea.
There are what sound like some laudable projects being funded amid the flimflam of political expedience, including election support for the Democratic Republic of Congo, Lesotho dam projects, the Burundian peace process, post-conflict reconstruction in the Seychelles and Liberia, and local government capacity building in Africa.
The fund was in the news last week, when President announced it would give R100m to Cuba to encourage that country to source goods from SA.
While this may benefit businesses in SA in the short term, there is no sign that it will be a good long-term investment. Notwithstanding Cuba’s symbolic importance to Africa, its economy is in trouble and — as Zuma said — its trade with SA is marginal, having dropped from R82m in 2008 to just R1m this year.
Cuba’s R1bn debt to SA, now written off, is further evidence of the communist state’s economic problems.
The fund, despite being largely funded by the South African taxpayer, appears to be a politically expedient vehicle with a vague mandate and kneejerk spending priorities made by a handful of unnamed people. It needs a more targeted mandate to leverage more tangible benefits for SA.
The fund could be more usefully employed as the underpinning of an economic strategy focused on countries closer to home with the aim of increasing regional trade and strengthening intra-African business engagement — an investment that may provide real benefits for SA’s own future growth.
Vainglorious waterway quest leaves presidents stranded
Three African presidents stood on a river bank recently, waiting for their boat to come in. It never arrived.This is no metaphor.
The leaders of Malawi, Zambia and Zimbabwe were gathered at Nsanje on the Shire River in Malawi for the anticipated arrival of a barge, which would have symbolically inaugurated a new inland port at the town. But neighbouring Mozambique spoilt the ceremony by seizing the vessel before it could cross the border on its journey inland from the Indian Ocean.
This disappointment might have hampered an ambitious plan to utilise an inland waterway, but it is unlikely to have torpedoed it. Indeed, it has stimulated renewed debate over the pressing need to improve commercial transportation links in southern Africa – and greater use of the region’s rivers in particular.
For the past five years, regional bodies have spoken about the possibility of rivers such as the Zambezi being used to convey goods and provide new options for countries that are uncompetitive in global trade because of high transport costs.
However, proper feasibility and environmental impact studies have yet to be done.
Malawi’s President Bingu wa Mutharika decided to take matters into his own hands when he commissioned a Portuguese company to develop port infrastructure at Nsanje in southern Malawi.
The test run for the waterway between the Indian Ocean and Nsanje, first along the Zambezi River in Mozambique and then the Shire into Malawi, was undertaken to prove that the route was navigable.
But Mozambican officials impounded the barge shortly after it had set off, saying no permission had been granted for the passage.
Needless to say, Mozambique’s President Armando Guebuza was not at the ceremony in Nsanje. Some say he was not invited; others that he turned down an invitation to join his neighbouring leaders.
Mozambique, in which most of the waterway is located, has insisted an environmental impact study is necessary before any consideration can be given to commercial barging. It maintained that Malawi’s planned inauguration of Nsanje port was tantamount to announcing the Shire-Zambezi waterway was already an international trade route.There are hitches along the waterway. These include a 20km stretch of marshland on the Shire section and shifting seasonal sandbanks in the Zambezi, which would necessitate constant dredging. Also, the port at Chinde, near the mouth of the Zambezi, cannot dock large vessels, so goods would have to be transported to Beira further down the coast.
Mutharika’s intentions are good, even though some critics dismiss this as a “vanity project”. Transport costs make exports uncompetitive and imports expensive. The Shire-Zambezi route is less than 300kms from Malawi’s commercial capital, Blantyre, compared with the 900km to Beira port, or the 1 200km to Nacala port in northern Mozambique, or the 2 000km to Dar es Salaam port.
Durban, currently the preferred port for southern Africa, is even further, while border delays further increase transit costs.
Some studies reckon companies in Malawi could reduce export costs by up to 60% by using the waterway.
The Zambezi is also an option for the large-scale coal mining operations being developed in Mozambique’s Tete province, upriver from the confluence of the Shire and Zambezi rivers. Inadequate transport infrastructure in that region is a problem for mines that plan to produce 10 million tonnes of coal in the next two years – and need to get it out of Africa.
Australia’s Riversdale Mininghas completed early studies on the viability of the 560km of river from Tete to the Indian Ocean to analyse the viability of large-scale barging to an offshore trans-loading vessel. These studies suggest the route is navigable, although dredging of the Zambezi will be necessary.
There is much talk of the commodities boom enriching Africa but little is said about how these rapidly increasing volumes of goods are going to get off the continent.
Road networks are already taking a pounding by heavy trucks, rail networks are being rehabilitated but most are not competitive, while ports around Africa are congested and inefficient.
Mutharika’s impatience to find a solution is understandable – too many African infrastructure projects are still gathering dust despite the urgent need for new and improved transport routes. But it is foolish to fall out with your neighbours in a quest for glory.
Poor leadership sows the seeds of African agricultural failure
A GREEN revolution, like any other revolution, takes real leadership; it requires an acknowledgement that food production is a life-and-death matter, a Vietnamese academic told an agricultural conference I attended in Hanoi last week.
Feeding a nation was not possible without a clear and decisive strategy, he said. Vietnam has proved that it knows a thing or two about producing food, for not only its people but a good chunk of the globe. Its own green revolution allowed it to move from being a net food importer to one of the world’s biggest exporters in certain crops.
Good leadership, high investment in the sector and constant policy innovation have been the hallmarks of many Asian agricultural revolutions. The story is well known but the lesson remains instructive.
In Africa, one could interpret the invitation by at least 11 African governments to South African farmers to come to their countries to produce food as at least an acknowledgement that there is a problem in agriculture — and an opportunity.
But it also suggests our continental leaders are not looking for a revolution but rather a quick fix.
The latest such deal — the offer of 10-million hectares to South African farmers to produce food in the Republic of Congo, a fertile country that continues to import 95% of its needs — highlights the huge needs of such countries. And it is just one of many.
Fertile land is one of Africa’s greatest resources. And yet 35 African countries are net food importers. The reasons for this are as complex as they are simple.
The approach by many foreign governments (and several African states such as Libya, Egypt and Mauritius) to rent land on the continent to grow food for their own people suggests it is possible to turn this around, and to do it quickly with the right elements in place.
This new resources grab is controversial — as most issues related to land in Africa are.
Detractors say renting to foreigners will rob Africans, particularly peasant farmers, of their land.
Concerns have also been raised about limited linkages to local development and sustainable development because of a lack of transparency in negotiating such deals.
The debate on these issues, raging for years in the resources sector, has hardly begun in agriculture. It took foreign interest in this unused resource to get us thinking about it.
Regardless of the merits of such deals, the increasing interest in producing food in African land raises the question: if the land presents such a big global opportunity, why are we doing so little with it?
Why is the continent still mired in the decades-old situation of begging for food from international donors, as Ethiopia did last week? Why can African countries not feed themselves when more than half of all economically active people are on the land?
The Zambian example shows what can be done with a few good skills and technical support. The country moved from being a maize importer to an exporter in just a few years on the back of the efforts of little more than a dozen skilled commercial farmers. African farming skills are a sought-after resource and white farmers in southern Africa seem ready to fill the gap.
But these ad hoc interventions will not be a substitute for building agriculture from the bottom up through dramatically increased investment in people and agriculture, predictable and innovative policies, and, importantly, leadership.
Despite the heightened international interest in the sector, agriculture remains the poor cousin of African development. It bears the brunt of poor operating environments and weak macroeconomic policy. It is the victim of political exploitation and urban drift.
People want to be in the cities. The elites who make policy are focused on the urban opportunities. Rural populations are generally left to fend for themselves, becoming voting fodder every few years when elections come around, as the recipients of politically expedient policies that do little more than further undermine the sector.
The new land grab in Africa, estimated at nearly 3-million hectares to date and gaining ground, is a wake- up call to do something with one of the biggest resources the continent has. We are running out of excuses for why Africans continue to starve.
Games is CE of Africa @ Work, a research and consulting company.