Month: July 2012

Africa’s investment avalanche: Part Deux

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So here are some of the other reasons why I am skeptical about the extent to which Africa will benefit from the imminent investment avalanche.

 

1. Africa is an immature and poorly integrated market…ready to be led

It is common knowledge that African businesses are poorly integrated into the global supply chain and that,’ African enterprises need to link with global supply chains to market their products internationally’[1]. I often get the impression that we are at the most basic, extractive level, after which we are swiftly forgotten as we are not a key global market either.  Indeed, despite the liberalization in the global trading system, Africa has failed to make the most of the opportunities created by it. And, ‘Africa’s failure to benefit from these opportunities are not primarily related to tariff barriers but to the lack of productive capacity needed to ensure necessary quantity and quality of supply; inability to prove compliance of potential export products with international standards and the problems with integration into the multilateral trading system’. Basically, we need to better integrate ourselves into the international supply chain if we are to become a force to be reckoned with and thus listened to. However, we do not have enough expertise in this area and as a result we are ready to be led by those who have done this before, including those who played a major role in crafting the global supply chain in the first. It is either that or we will rely on those who have studied the system and understand this. Thus Africa will either hire in the required expertise from aboard, or hire Africans at home or in the Diaspora who are well-versed in this area to do the job. Bear in mind that as we are trying to truly enter global supply chains, we are doing so in the reality that there are established players and in most elements of the supply chain. Therefore we do not have the luxury of being pioneers and learning how to function effectively in supply chain at our own pace. Thus steep our learning curve must be, yet competent and competitive. Moreover, we may not know if we are being given dubious advice as this is fairly new territory for Africans. Shall we manage?

2.       Poor intellectual property habits: The New Brain Drain

It seems as though Africans are very poor at patenting their innovative products. Indeed, ‘In Nigeria, about 99% of patents applications lodged with the Patent & Designs Registry are made on behalf of foreign brand owners in Europe, United States of America and Asia’[2]. Ergo even if Africans are being ingenious, this is being registered and therefore benefiting non-African states. Africa is haemorrhaging  insights and ideas to foreign companies operating in our nations. This is the New Brain Drain. African brains working hard…for someone else…in Africa. Yes it can be argued that the innovations still benefit Africans if they are used on the continent. This is true. However, if ultimately we do not own the IP, we are limiting the extent to which Africans can benefit from the ingenuity. Does this essentially mean that Nigeria will be the prototype? That EuroAmerica and Asia will be the main actors filing patents, some of which are rooted in ideas created by Africans?  This IP loss includes that of knowledge and phenomena that are uniquely African, rooted in our heritage and traditional knowledge systems. To be fair, some African government are aware of this issue and have passed legislation and protocols to prevent the theft of African intellectual property. In Kenya for example, the new constitution includes a special section saying that ‘the state shall support, promote and protect the intellectual property rights of the people of Kenya’[3]. ‘This provision seeks to ensure that Kenyan communities are protected from exploitation and the loss of elements of their cultural heritage to the wider world’[4]. While this is indeed commendable, some argue that this is a form of protectionism against foreign competition and fails to, ‘create incentives for new creativity and innovation’[5]. Either way, this is just legislation. Its effects will only be seen if it is implemented effectively…and those of us who know Kenya know that Kenyans are GOOD at making great legislation and policies, but suck at implementation.  So it still stands that the poor IP practises in Africa do leave the continent vulnerable and in a situation where African ingenuity can easily be patented by foreigners, leaving Africans holding nothing but the wind.

3.       Habits of the African ruling elite

The African elite, those who hold the real political and financial power on the continent, can be argued to be Africa’s greatest enemy. Why? Because they can afford to collude with powers whose actions will be detrimental to the continent, for their own benefit. Without the African elite, the slave trade would not have flourished. It is the African elite that made agreements with EuroAmerican slave traders, organised the raiding of villages and subsequent capture of innocent Africans to be sold to the traders in exchange for money, alcohol, spices and trinkets. It should be obvious that when foreigners enter a nation, they seek to interact with the elite so as to ensure that the elite do no become a force that compromises the activities they intend to carry out in the said nation. Luckily for them, the elite in Africa seem to be happy to work with them no matter what the cost is for other Africans. The same self-serving priorities of the elite occurred during colonialism. The African elite cooperated with colonial powers, were instituted as tribal chiefs under colonial law and became forces of the implementation of colonialism in exchange for favours from the colonial governments. This trade off also ensured they maintained their (diluted) power over the people under their jurisdiction. In short, most African elites have been selling out for eons, and will continue to do so. We see this in Africa every day. The political elite engage in corrupt deals with foreign powers for their own good. Even when the deals are clean, the elite ensure that the Africa masses only benefit after they have taken what they view as their share. I think the elite’s habits are not going to change any time soon. So even if African governments are getting better at making reasonable deals with investors (as this case with TOTAL seems to indicate), that trickle down will not happen. The benefits of the investments will likely not reach most Africans. So this again, is why Africa is ill-prepared for the investment onslaught; we do not have the structures in place to ensure that the investment truly benefits the continent tangibly. The benefits may very well remain plugged up with the elites, with a few anecdotal drops reaching most Africans.

4.       Poor populace

It is very difficult for poor people to negotiate fair deals, or to be involved in the negotiation in the first place. I have seen this in my work with economically poor communities in urban slums and rural areas. When money colludes with political favouritism, the locals tend to suffer be it in the form of their land being taken, egregiously low wages, horrific working conditions, untreated work-related injuries or the environmental devastation of their natural resources on which they often rely for income generation. Well-wishers can often take some action to alleviate the intensity of the suffering, but rectifying the wrong is close to impossible. Some Kenyans have been jubilant over the discovery of oil in the nation. I have not. Pray tell, to what extent will the often impoverished communities on whose land oil has been found be involved in ensuring the natural resources on their land will be beneficial to them? They are likely to be saddled with the environmental problems that come with oil drilling and little else. In fact the milieu of poverty and the selfishness of the elite, create a terrific scenario for the complete economic alienation of the communities. Perhaps the most they will get is a decent road on which oil will be swiftly wheeled out. Or maybe a small number of businesses will be set up by the community to meet the basic needs of the local staff of the oil company; however they will have to compete with outsiders for this. Maybe, if they are really lucky, oil companies will engage in well-orchestrated and well-publicised token CSR activities all done in the name of ‘community development’. Real benefits which lead to a tangible improvement of the local communities will be hard to come by. I think, under current conditions, the oil-related investment in Kenya will give birth to a nation that is a cross-breed of the political instability and environmental devastation of Nigeria, and the gross class divide of Brazil. Good luck with that.

5. Poor regulatory environment

This is an interesting conundrum. This first part of the conundrum with regard to a poor regulatory environment is the absence of policies, bodies and instruments of regulation. EuroAmerican investors often bemoan Africa’s poor regulatory environment when it comes to doing business on the continent. Here, ‘Poor regulatory environments in Africa are characterized by the absence of laws and regulations’. The AfDB states that, ‘Improved infrastructure including a functional regulatory environment, will increase Africa’s competitiveness and productivity, lower the costs of doing business, and facilitate trade and foreign direct investment’[6]. Although we are improving  as seen in the fact that in some sectors, ‘despite setting out late from the liberalisation starting blocks, Africa has been pushing ahead of the Middle East and parts of Asia in opening up telecommunications markets and ushering in regulatory reform’, we still have far to go[7]. The other part of the conundrum refers to a poor regulatory environment, in which the regulatory policies and legislation exist, but are simply not implemented. This type of poor regulatory environment is the one that concerns me deeply because it can be used by unscrupulous investors who know they can get away with a lot more in such an environment. In a poorly regulated environment, you can get away with illegal pollution, poor wages, unhealthy working conditions, child labour and myriad of other objectionable actions. My work in the rural coast, clearly demonstrated how poor regulation, often bolstered by corrupt local government and regulatory bodies, simply devastated the local communities. The most glaring example was that of a salt firm which employed locals for 12-hour shifts at a time with no breaks and no protective gear whatsoever. Due to the lack of protective gear, the locals had started developing medical conditions where lumps would form all over the body from which, if operated on, a salty substance would be removed. Pregnant women working on the plant would commonly suffer miscarriages. If the pregnancy was taken to term, the child born would have severe mental and physical disabilities. Those packaging the salt often lost fingers to the packaging machines. In addition to this, the salt mining had led to the salination on fresh water sources on which the community relied for drinking and household purposes. The community soon found themselves in a position where they had to rely on the very same salt mining companies, to drive out for miles and bring in fresh water, which was then sold to them at high prices. Please bear in mind that the reason why most community members were working for the companies in the first place was because they relied on fishing as an income source. However, the salt companies had blocked access to the ocean and did not permit locals to walk through the factory to the ocean. Soon the locals found that the only option they had to gain some regular income was to become hired hands at the salt factory. This sort of flagrant disregard for the law simply would not occur at such a scale in a properly regulated environment. Yet I fear Africa is full of such blackspots; spots where the light of regulation simply does not shine and in which crooked investors thrive to the utter detriment of the communities involved. A poor populace is easily manipulated and if the local political leaders, councils, ministerial offices and regulatory bodies fail to serve them, they begin to live a nightmare. It is my hope that as investors come to Africa in the droves, MOST of them will comply to regulations even when they know they can get away with non-compliance. However, the reality is that some investors will use the poor regulatory framework to their advantage and Africans will suffer.

So now you know some of my fears. However it is not all doom and gloom for Africa. There is ALWAYS hope. We can make good use of the incoming FDI. We are better placed to do so now than ever before. Furthermore, we can draw valuable lessons from past mistakes to ensure better returns are generated for Africans this time around. I will write about that soon as well…perhaps in the next post.


[1] United Nations Industrial Development Organisation (UNIDO) (2006), ‘Trade capacity building paper: Supply side constraints on the trade performance of African countries, http://www.unido.org/fileadmin/media/documents/pd f/tcb_supply_side_constraints.pdf

[2] Uche, Nwokocha (2009), ‘ Nigeria: Sub-Sahara Africa: Intellectual Property Rights Development’ http://www.mondaq.com/article.asp?article_id=70872&signup=true

[3] Masnick, Mike (2010). ‘Be Careful What You Wish For: Now That Kenya’s Been Pushed To Recognize IP, It’s Starting To Protect More’, http://www.techdirt.com/articles/20100630/18071010031.shtml

[4] Masnick, Mike (2010). ‘Be Careful What You Wish For: Now That Kenya’s Been Pushed To Recognize IP, It’s Starting To Protect More’, http://www.techdirt.com/articles/20100630/18071010031.shtml

[5] Masnick, Mike (2010). ‘Be Careful What You Wish For: Now That Kenya’s Been Pushed To Recognize IP, It’s Starting To Protect More’, http://www.techdirt.com/articles/20100630/18071010031.shtml

[6] African Development Bank Group (2012), ‘Briefing Notes for AfDB’s Long-Term Strategy’, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Policy-Documents/FINAL%20Briefing%20Note%206%20Inclusive%20Growth.pdf

[7] Van der Merwe, Clairwyn (2012), ‘Computers and Communications in Africa – African regulatory environment’, http://www.mbendi.com/indy/cotl/af/p0012.htm

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