AFRICAN countries seem to be having a recent wave of economic awakening anchored on mineral value addition as a panacea to wealth creation and retention for their poverty-stricken people.
Unfortunately, the policies show a lack of depth, suffocated thinking and innovation paralysis around the familiar on how to make nations achieve success.
The patent laziness to innovate outside the familiar of both minerals and how to achieve success from them is a shallow comprehension that the new economic imperial powers dominating the African landscape have expertise in exploitation and siphoning wealth to their native countries.
They have devised brutal strategies to continue with robbery as governments simply tick the box of value addition.
One of the oft-repeated fallacies used to justify this half-baked thinking is job creation. Jobs are presented as if they were a favour from corporates, with governments conveniently forgetting that businesses are not social welfare organisations.
Companies invest to make profits, create value and remain commercially viable — employment is a consequence of economic activity, not charity.
The sustainability and practicality of this jobs thinking is devoid of the reality that modern corporates treat labour as a cost, not a benefit, and are always innovating to destroy jobs, rather than create, through AI, robotics, automation and mechanisation.
In a few years, value addition shall be possible with far fewer jobs. The jobs currently being created are not sustainable in the long term for governments to latch on to them as a panacea.
On the aspect of jobs, it is unfortunate that governments rarely demand high-value jobs for the natives. We, Africans, do not own the technology, plant, equipment and other value chain aspects, and that is a leverage for high-value jobs for the investor’s kith, kin, and folk. There is rarely a concrete and well-thought-out government policy to transfer skills to locals.
There is little or no role for governments having access to the markets. It is the reason almost all value-added products are destined for economic agents’ country of origin. Africa does not negotiate selling prices, has no markets, is not part of export processes, has no part to play in trade terms and conditions, and proceeds are deposited in their appointed banks offshore. Of late, they own banks in Africa. With most governments’ eyes all on value addition, the opportunities to make offshore profits are huge.
We are desperate for investment, such that there are often blanket offers of tax breaks and a very unusual refusal to invest in advanced thinking. Tax breaks are often married to huge capital allowances like special initial allowances, wear and tear, and in some jurisdictions some form of depreciation.
Tax breaks should be married to country strategic intention like job creation, export proceeds, dividend policy, reinvestment, local content, environmental management and board control.
There is no energy and intellect expended in these marriages except that the mineral has been value-added.
No significant wealth is retained through taxes even for as much as 10 years.
Often, companies gain more from tax breaks and other incentives than the wealth they create locally — leaving taxpayers subsidising businesses while communities carry the cost.
Most African jurisdictions have requirements for local board members, but that is just on paper. Board and executive leadership control is external. Without local participation in share-holding and leadership, a rational economic entity will never decide to create and retain wealth in Africa when none of these investors retire, die, and get buried on the continent. Their hearts are not in Africa.
It is imperative to force published finances as public interest entities, independent auditors, agreed dividend policies, social and governance frameworks, and access to supply chain partners.
As long as governments fail to design local participation and community ownership, foreign companies will design director hybrid share schemes, preferential shares and debentures with guaranteed returns, share classes with more rights and hefty expatriate salaries and bonuses. Some even come as consultants with hefty payments. These schemes do not create local wealth and non-local investment is not invested locally, even in rudimentary-level products like a savings account.
Without policy intervention, thin capitalisation financing models by “investors” will milk profitability dry. Lines of credit, bank loans, venture capital and foreign government loans are negotiated and concluded without the ability of locals to determine the application of the funds and interest rates.
Interest often wipes out profitability and results in tax losses. We have not shown the capacity to demand better particulars in this regard from our investors. Our achievement is always value addition without concern for wealth creation.
A blind spot the government often omits is plant and equipment.
There is no investment in due diligence of costs, suppliers, importation and installation. These costs build up and are a future fodder for profit reduction and capital allowances.
Related party transactions are a possibility along the chain.
“Investors” are not so kind as they have to fulfil the insatiable desire for value addition that is so demanded.
Exit of these companies due to disputes with host nation, seismic waves and or geo political tensions may present massive disruptions. Governments have no clue about the technology in use; repairs and maintenance are out-sourced in foreign countries, suppliers have exclusive agreements and parts are not local. The most important thing governments have to do is to force training and development, skills transfer, foster strategic independence and invest in reducing vulnerabilities. It’s not being done and it’s not being demanded.
Economic imperialists are not creating sustainable wealth, they are benefiting their countries of origin. Africa will remain poor without investment oversight on the entire supply and value chain. We need an expanded regulatory framework and enforcement institutions if we are to score on the wealth creation side of things.
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