The paradox of plenty: what does Africa need to develop and prosper?

Hands up; who only really woke up this morning thanks to the power of coffee? Don’t worry – you’re not alone. While your hands are still in the air, how many of you snacked on fruit at some point during the day? Whether you’re in Southern hemisphere keeping warm at home during the winter or in the North, about to board a plane to the beach, it’s possible thanks to petroleum. What do these three items all have in common? Other than being parts of our everyday lives, there’s a very good chance they found their way to you from Africa.

As the world’s second-largest continent – one with vast lands of crops and minerals – it’s safe to say that Africa could be the single most resource-rich piece of real estate on the planet. However, ‘rich’ in this case doesn’t mean ‘prosperous’; like in real estate, how much profit does the land keep for itself?
Earlier this year, a number of charities published a report – called ‘How the World Profits From Africa’s Wealth’. While it found that Sub-Saharan African countries in 2015 received $161.6 billion in loans, aid and payments for goods, they lost $203 billion due to tax avoidance by multinational corporations, debt payments and extraction of natural resources, creating a $41.4 billion deficit. In 2016, the IMF reported Africa as having the lowest GDP per capita ($1,809 USD) out of every continent: over three times less than the next lowest, Asia.

Africa is not poor. I can guess what you might be thinking; given the above, if Africa isn’t poor then who or where is? You’d be forgiven for asking that question but it’s true; Africa is wealthy. With 60% of its population under 25, Africa’s youthful population brings real prospects for economic growth, provided the resources are there to empower it. Booming business may not be the first thing that comes to your mind amidst the media coverage of a continent in war and famine, but it is a very real and sustainable thing: in 2014, the largest 500 African companies logged a combined turnover of $698 billion.

We’ve spoken already about Africa’s rich natural resources, but their value really can’t be overstated. In 2015, Sub-Saharan Africa exported $232 billion worth of minerals and oil to the rest of the globe. Of course, the value of Africa’s mineral reserves in the ground could far outstrip what we know to be the case. Take a couple of examples: South Africa’s potential mineral wealth is estimated to be about $2.5 trillion, while the largely untapped reserves of the Democratic Republic of the Congo – a country with a GDP per capita among the lowest in the world – have been valued at a towering $24 trillion.

Why then does Africa’s development still lag behind that of the rest of the world? Many factors are at play. Just as Africa is a collection of different societies, landscapes and foreign relations, the developmental needs differ by the country. Yet there are common issues that impact large parts of the continent; some, such as the effects of climate change and political instability, aren’t easily addressed, and certainly not with a solution appropriate for all countries (or, sadly, with a blog post).

So we can’t solve all the world’s problems, that much is clear. But we can think about positive steps to take. What does Africa need to develop and prosper? How can Africa get the most out of its trade and investment? Read on and explore three suggested actions that Africa can take:

1. Push back against exploitation by multinational companies.

When multinational companies export commodities like oil and metals out of Africa, the ones that benefit the most tend not to be African countries. In crucial sectors such as mining and oil and gas, companies tend to pay low taxes and, as has been the case with African exports to China, are sweetened by tax incentives from African governments – sometimes encouraged by Western investors – to attract further export opportunities.

The situation means that African countries receive little tax revenue from these companies. In other words, money is flowing out of the continent partially because Africa’s wealth of natural resources, when owned by foreign enterprise, isn’t Africa’s at all. A 2016 report from War on Want found that African governments hold shares in only a minority of foreign investments – and even if they do, they usually range from 5-20%. The report further found that 101 companies listed on the London Stock Exchange control over $1 trillion worth of African coal, diamonds, gold, platinum and oil from mineral operations in 37 African countries.

Worse still; multinational companies are easily able to avoid paying any taxes at all if they manage their taxes through tax havens. While 59 of the 101 companies referred to are incorporated in the UK, 25 are incorporated in havens such as British Virgin Islands, Guernsey and Jersey with their combined value reportedly standing at $41.05 billion. How many of these companies are incorporated in Africa? Two.

This exploitation is further seen in a 2013 investigation by the Africa Progress Panel and Global Witness, which looked at five major sales of mining rights in the Democratic Republic of Congo. Keep in mind: DRC has astronomical mineral wealth – cobalt, copper and diamonds in particular – so any mining contracts that tap into its resources are bound to be lucrative for those buying the rights. Considering the country also has some of the world’s darkest rates of malnutrition and child mortality, the hope is that deals on such a scale could supercharge DRC’s ability to provide for its most basic needs. It’s sad to say then that the investigation estimated that the price paid for the mining rights was at least $1.36 billion below their market value. To put it another way: the DRC lost nearly double its yearly spend on health and education combined.

For Africa to truly develop and prosper, it must level the playing field. Pushing for increased transparency of tax disclosure by multinationals wanting to operate in the continent seems like a helpful step, but it goes two ways: for stock exchanges, it means not listing companies unless they can prove they don’t use tax havens and that they pay a fair amount of tax in all their business locations. For African countries, it means shunning trade and investment from companies that pressure African nations into significantly lowering taxes or that totally avoid paying their dues through the use of havens.

To outright prevent multinational companies with subsidiaries in tax havens from operating in Africa might seem naïve given our existing power structures, but it is a move that could be vital to challenge such dynamics. Still, there are more pragmatic steps that African governments can take. If African countries want to keep hold of the benefits of foreign operations, they should ensure that these companies feed back into Africa’s economies by hiring and training large proportions of local staff, also buying large amounts of local produce and services.

Promises aren’t enough. Legislation needs to be implemented and enforced so that foreign multinational companies follow laws on tax disclosure, hiring local staff and buying local goods. If it doesn’t happen? It’s time for Africa to look elsewhere.

2. Boost ties with Latin America

A curious thing about War on Want’s list of 101 companies; apart from one company incorporated in Zambia and another in Australia, every single other company is based in the northern hemisphere. Even then, Australia may be in the southern hemisphere but developmentally is miles apart from the global South. More affluent Northern nations also account for Africa’s most significant trading partners, as seen in the tables below:

– Top five countries that Sub-Saharan Africa exports to (2015)


(SOURCE: World Integrated Trade Solution, World Bank)

– Top five countries that Sub-Saharan Africa imports from (2015)


(SOURCE: World Integrated Trade Solution, World Bank)

South Africa proves to be a significant regional power for its bilateral trade standings within the bloc, yet the continent’s strongest trade relations are dominated either by developed Western countries or rising superpowers of the developing world. For those concerned that Africa’s trade and investment is railroaded by exploitative powers, it’s worth asking this; can a turn towards Latin America offer a more prosperous future to Africa?
There are some reasons to be optimistic. 2016 saw a free trade agreement forced into effect between the 12 South American nations in MERCOSUR and the South African Customs Union; meaning Botswana, Lesotho, Namibia, South Africa and Swaziland. Trade between South America and Africa grew 75% between 2005 and 2012, ending the period at $39 billion. In 2014, Mexico and South Africa struck several economic agreements, while Peru pledged to open new trade offices in Ghana, Morocco and South Africa. Despite the recent growth in ties, African and Latin American countries alike remain more disposed towards the global North, with bilateral trade between the two blocs making up small overall shares. Latin American exports to Africa in 2013 were valued at $22.7 billion – 2.2% of a total $1.01 trillion, whereas African exports to Latin America in the same year were put at $21.8 billon – 3.6% of an overall $600 billion. Mutual trade certainly has potential but it is significantly held back by the design of their respective economies. Both Latin America and Africa are focused on exporting primary products, meaning they don’t naturally complement and, when they share commodities for exporting, are actually competitors.

Perhaps this is for the best. Having seen how Africa’s extractive sectors can be exploited by the tax avoidance of multinationals, Latin America’s relative lack of interest in Africa’s resources may be a blessing. Diplomatic relations are promising, yet with room to grow: 32 African countries have some kind of political representation in Latin America while 21 Latin American and Caribbean countries enjoy the same status in Africa. So far, the most meaningful types of cooperation between the two haven’t necessarily been large scale trade and investment projects, but collaboration in addressing developmental issues such as health, the environment and education. Countries of Africa and Latin America have called a series of meetings on drought and desertification on the basis that South-South cooperation ‘is an imperative element for combating desertification and poverty in developing countries’. Members of the Africa-South America Summit have further pledged to rally together against diseases like malaria, tuberculosis and HIV/AIDS. Several Latin American countries – most notably Cuba – have donated supplies, money and medical expertise to combat Ebola in West Africa.

Africa’s most crucial Latin American ally is, unsurprisingly, Brazil. Brazil’s development projects in the continent are varied: from opening a plant in Mozambique where antiretroviral drugs are to be developed in the fight against AIDS, to providing Kenya with a $150 million loan to build new roads. What really sets Brazil apart from other Latin American countries is its shared cultural and historical ties with Africa. Brazil has one of the globe’s largest populations from African descent, a demographic born from dark history: out of the 11 million Africans brought to the Americas during the slave trade period an estimated 4.9 million went to Brazil, making it the country with the most slaves in the world. Unlike other colonial and slave trade powers Brazil has openly expressed a compulsion to develop Africa; in 2010, then-President Lula claimed that Brazil “would not be what it is today without the participation of millions of Africans who helped build our country” and that it could never repay its “historic debt” to Africa.

Shared linguistic ties push certain African countries especially close to Brazil. In 2013, Brazil kickstarted a higher education programme where educators and researchers from 20 Brazilian institutions began to train students in the Portuguese-speaking nations of Angola, Cape Verde, Equatorial Guinea, Mozambique and Sáo Tomé and Principe, also granting scholarships for African students to study in Brazil. While communication issues are an impediment to wider trade and investment from Latin America, a shared language only amplifies how valuable a partner Brazil is to the region: in 2012, the bilateral trade value between Brazil and Africa stood at $26.5 billion – over two-thirds of the overall trade sum between Africa and Latin America.

3. Strengthen intra-African trade

The best option of all might lie the closest to home. Trade in Africa today is seriously lacking intra-continental activity: in 2014, Africa had the lowest level of intra-regional trade at 18%: way below the likes of Europe (69%) and Asia (52%). It’s a myth that this is so because African nations have nothing to trade with one another. The African Development Bank argues as Africa offers a diverse range of exports, trade within the content can only be complimentary: for instance, resource-rich nations can trade them for the supplies of countries with more agricultural produce, whereas countries with more developed manufacturing sectors are primed for growth – if only they can access the larger African market.

It seems like the African Union agrees. With the main theme of the African Union Summit 2017 being ‘Boosting Intra-African Trade’, the future of intra-African trade and investment looks bright. Some encouraging details have emerged: namely, a vision of an ‘African Union’ passport which will allow freedom of movement and capital between African nations, hugely opening African markets up to one another.

Time will tell how well this is implemented. For now; what does Africa need to develop and prosper? It needs to rally against the exploitation of its resources by foreign powers, open itself up to more favourable trade and development programmes with Latin American allies and boost import and export opportunities to Africa, from Africa.

 

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Sources

African Development Bank Group: https://www.afdb.org/en/news-and-events/intra-african-trade-is-key-to-sustainable-development-african-economic-outlook-17022/
Forbes: https://www.forbes.com/sites/amyjadesimi/2017/05/23/intra-african-trade-a-catalyst-for-peace-and-prosperity/2/#476410f23708
World Economic Forum: https://www.weforum.org/agenda/2016/04/africa-needs-to-trade-with-itself/
https://www.weforum.org/agenda/2016/05/africa-is-rich-in-resources-but-tax-havens-are-keeping-its-people-poor/
Global Justice: http://www.globaljustice.org.uk/sites/default/files/files/resources/honest_accounts_2017_web_final.pdf?utm_source=Global+Justice+Now+press+release+list&utm_campaign=17a92094cc-EMAIL_CAMPAIGN_2017_05_17&utm_medium=email&utm_term=0_166972fef5-17a92094cc-288067157&mc_cid=17a92094cc&mc_eid=36069f80a0
War on Want: http://www.waronwant.org/sites/default/files/TheNewColonialism.pdf
Mo Ibrahim Foundation: http://mo.ibrahim.foundation/news/2017/africas-growing-youthful-population-reflections-continent-tipping-point/
Andina: http://www.andina.com.pe/INgles/noticia-peru-plans-to-step-up-trade-presence-in-africa-527933.aspx
Foreign Trade Information System: http://www.sice.oas.org/tpd/MER_SACU/MER_SACU_e.asp
World Politics Review: http://www.worldpoliticsreview.com/articles/14763/pull-of-global-economy-increases-latin-america-africa-engagement
University World News: http://www.universityworldnews.com/article.php?story=2013061510043840
New York Times: http://www.nytimes.com/2012/08/08/world/americas/brazil-gains-in-reaching-out-to-africa.html?
IMF: http://www.imf.org/external/datamapper/[email protected]?year=2016

BBC: http://www.bbc.com/news/10500100
World Trade Integrated Solution: http://wits.worldbank.org/CountrySnapshot/en/SSF/textview
German Marshall Fund of the United States: http://www.gmfus.org/publications/brazil-and-africa-historic-relations-and-future-opportunities
LSE: http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR016/SR-016-Alves.pdf

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