Poverty and Africa: Those are terms that seem to correlate in the minds of many. But Africa holds 30% of the world's known mineral reserves. With oil, gold, diamonds and rare minerals, Africa is blessed with abundant resources.
Industry Insights

Geopolitics: Why Multinationals are exploiting Africa

Poverty and Africa: Those are terms that seem to correlate in the minds of many. But Africa holds 30% of the world’s known mineral reserves. With oil, gold, diamonds and rare minerals, Africa is blessed with abundant resources.

So what has left the continent stripped of the benefits of its unique selling points? Some point to West: Many multinational companies can be traced back to colonial roots, thus being accused of continuing an exploitative history.

Some of these also engage in trade mispricing or transfer pricing. Others point to the continent itself: offshore banking has opened up new avenues for secretive deals, corruption and illicit financial flows.

But it’s not just the unethical practices that strip Africa of its wealth. Governments, as well, have contributed their share by introducing loose and overly generous tax incentives that benefit foreign importers but not the local exporters.

Moreover, wealth is often concentrated in the hands of a small elite benefiting from exploitation and corruption.

In such an imbroglio of interests and stakeholders, who can point out the biggest thieves with certainty? what is undermining the translation of Africa’s wealth into inclusive economic development and prosperity for all?

During this year’s Geopolitics conference at Makerere University, a panel discussion on regional trends was geared on understanding who is stealing Africa’s wealth and how are the natural resources stolen, an example such as a country like D.R.C with incredible wealth of 21 trillion dollars of natural wealth which does not even equal to the GDP of USA, yet highly struck with poverty.

Dr Maggie Kigozi a former director with Uganda Investment Authority (UIA) for about 11 years opened up the heated conversation by throwing light on the richness of Africa.

“Africa is immensely rich and the continent has it all, Uganda, in particular, has about 60 Universities and among them is Makerere with over 100 years in existence which enlightens the high education standards of our people.

“The continent is young and rich for example Uganda, we are rich in mineral resources like Oil, high in Agriculture favoured by the perfect climate, great tourism products,” said Kigozi.

Morrison Rwakakamba of Fenix International while addressing the question who is stealing Africa’s wealth, quoted a book, “Embedded economy” which emphasizes the role of government and states capacity to be able to allocate resources to the needs of the people.

“If we had strong nation-states, government and institutions that had the capability to figure out where those resources are, build the human resources, exploit those resources and allocate those resources to empower the people to solve the poverty problem then we wouldn’t be in a situation where a country like Zambia loses USD 2 billion in its copper through stealing,” Rwakakamba said.

Africa has lost close to USD 50 billion annually in the space of the last 50 years due to illicit financial flows on the continent.

The question pointing at whether this has been highly impacted by the Westerners who came to the continent.

Ingo Badoreck, head of KAS Rule of Law programme West Africa said illicit financial flows are more of a symptom than the cause of the problem in cases like organized crimes, tax evasion etc.

“The more the country is rich with natural resources, the less they benefit from them.

“Africa is currently suffering from Dutch disease because resources are coming in from the sale of natural resources.

“Countries like Angola, Equatorial Guinea, DRC and Nigeria have the highest cases of illicit financial flows and they go to countries like the USA, Germany and now more increasingly to China,” said Badoreck.

With all this happening, the question still stands on how Africa will stop this vice, the necessary action to be taken by the governments, Dr Maggie said that it will at one point come to an end.

“One of the ways is the new generation of highly educated young people who will be able to identify what the past generations failed.

“With additional skilling and usage of ICT for E-governance, we think it’s one solution. We are looking at the type of investors and how we can regulate them.

“Our role as governments in each country and the private sector is to promote good corporate governance and understanding the particular people employed at every stage,” stressed Kigozi.

China is now a big player in the global economy.  Chinese investment in Africa and contracts between 2002 and 2017 amounts to USD.220 billion showing that China is fully coming for Africa at every single inch to do business with.

Ingo Badoreck analyzed if Africa is getting a fair share as a new kid on the block.

“We have to differentiate between investment and the uncovered cheques that the African governments are continuing to give to the Chinese government to fund their projects.

“These are loans that are supposed to be repaid over a period of time up to 50 years. It means that more pressure is imposed on the country’s development.

“So African countries need to learn how to define their own strategic interests and make sure they are not the losing party.”

“China has its strategic interests and they follow it. China is a big investor in Africa with over USD 2.2 billion is being invested annually.

“Take for instance Kenya where the Chinese government has constructed the railway line for USD 3.6 billion and is to be paid in a period of 30 years.

“It means that Kenya will not be able to make independent decisions on the basis of the projected income and it’s left for their the children of their grandchildren to pay the debt,” said Badoreck.

“We are basically coming to a situation of a looming debt crisis. Currently, 20% of all external debts of African countries are coming from China and right now, we have a decrease of 15.7% of external debts over the last four years.

“The debt currently stands at USD.648 billion which is the same debt crisis we had in the 2000s,” he added.

“One of the things that Africa urgently needs is internal investment. Investment from Uganda and the regions simply to be able to stand up with the pace otherwise it will be a nail in the coffin for Africa’s development.

“Africa’s population will double by 2050 from the current 1.2 billion people to 2.4 billion. There are 20 million young Africans joining the workforce every year so we have to rely on the private sector to employ these people.” Bodoreck said.