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On Africa’s big dreams

THE LAST WORD: Why our continent needs to rethink her overenthusiastic attitude towards foreign direct investment

THE LAST WORD | Andrew M. Mwenda | Last month, Rwanda hosted the African Union’s summit on the Continent Free Trade Area (CFTA). The discussions were as inspiring as they were frustrating. Leaders from government and the private sector talked big about the benefits of integration. Some even suggested an African crypto-currency. There is a mistaken belief that the existence of a common interest is sufficient to promote a collective effort to achieve it. This is rarely true.

African nations are young; they lack entrenched interests and profound national culture to drive consistent policy. So they sacrifice broader national interests over petty squabbles. For instance,I attended a discussion where South Africa’s president, Cyril Ramaphosa, was a panelist. The summit was being held in Rwanda. Ramaphosa spoke eloquently on African integration. Yet South Africa imposed a visa ban on Rwandans because of a disagreement between Kigali and Pretoria during the Jacob Zuma administration. Why punish ordinary Rwandans over a quarrel with their government?

The challenge to integration in Africa is the tendency to seek big dreams when our governments have failed to fix small things. For example, it is very hard for Africans to travel, leave alone to work, within Africa due to poor air connectivity; difficult visa and working permit requirements. Ugandans need a visa to travel to the Democratic Republic of Congo and South Sudan next door. So the gap between rhetoric and action in Africa is huge.

One of the reasons many people admire President Paul Kagame is he matches his words with government policies. Rwanda is the only country in Africa that allows all Africans to get a visa on arrival. How can Africa integrate when small things like ease of travel to visit or work by Africans within Africa are very difficult for our governments to implement? Does it need a summit of heads of state to remove visa requirements for Africans traveling within Africa? Without such a summit, most African countries allow Europeans and North Americans to apply for visas at the port of entry.

There were many discussions of how to make Africa hospitable to Foreign Direct Investment (FDI), by which they meant attracting American, European, Indian, Chinese and Middle Eastern capital. There was zero (and I mean zero) discussion of how to harness domestic capital as a driver of transformation. FDI has become the obsession of every African country and leader. It is easier for even a conman pausing as a foreign investor from China, America, Europe, the Middle East or India to meet a president of an African country than a big genuine local investor.

The CFTA is meant to promote continent trade. But we must remember that international trade is a value chain: some countries produce cotton; others weave cloths while others market high fashion. Some countries mine iron ore; others produce steel while others sell automobiles. How much a country earns from trade depends on its position in this value chain. The poorest countries export raw cotton and iron ore; middle-income countries weave cloths and produce steel. The richest countries market high fashion like Dolce and Gabbana, Valentino, Hugo Boss and Louis Vuitton and Toyota, Ford and Audi.

If you export raw cotton, you earn 1.9% of the international price of the final product – a Louis Vuitton shirt. If you weave cloths, you earn about 15% of the final value. For labeling the same cloths Louis Vuitton, the designer takes about 60 to 65% of the final value – the rest going as a margin for transportation, retail, storage etc. The same applies to those who export iron ore. To be producer and exporter of unprocessed goods, as Africa has done for the last 100 years, is to render oneself perpetually poor. This has harmful implications for the welfare of our people and the politics of our nations. Poor countries are characterised by “bad politics”.

Therefore, the process of moving from a poor to a rich country is a process of upgrading from being exporters of low value unprocessed goods to high value manufactured products. Yet there was little discussion of manufacturing as a driver of ourtransformation. Indeed, if you look across Africa, the continent is actually deindustrialising i.e. the ratio of manufacturing to the Gross Domestic Product (GDP) is declining in many countries or has been stagnant for decades or is growing marginally – except for Ethiopia. Even South Africa, Africa’s industrial giant, is deindustrialising.

Now why is FDI a poor vehicle for Africa’s transformation? As a rule, multinational corporations do not shift the most valuable aspects of their business to their subsidiaries. Apple is not going to shift the design and marketing of the iPhone to her subsidiary in Nairobi. Forget it. It will remain in California. However, it can outsource assembling, which it has done to China. Design and marketing of the iPhone constitutes 60 to 65% of the total value, assembling only 15%, the rest going into retail, transport, insurance etc.

8 comments

  1. ejakait engoraton

    THERE is no harm in writing 1/2/3 or even more articles about the same subject, just like 2 of M 9 previous articles were almost about the same topic UMEME.

    Likewise , there is no harm in revisiting a topic if new information on the subject becomes available or for some reason the information was not exhausted.

    I wonder therefore what the purpose of revisiting this particular topic FDI – foreign direct investment- is , since an earlier article under the heading “AFRICAS HIGHWAY TO NOWHERE” which appeared in these columns on the 13th November 2017 seems to provide almost the same information.

    This is almost a case of “new wine in old bottles” or is it “old wine in new bottles.”

    Which leaves me almost in a situation of having nothing much to say, for fear of repeating myself, having said almost all that I felt warranted my response.

  2. 1.For some selfish reason Africa’s one of the biggest clients of the 1st world for example, we buy military,pharmaceutical,electronics from them so how is Africa supposed to participant in the international market do we have any say in the international market?
    2.Who lobbies for Africa in the international arena?
    3.Who does Africa dine and wine with this matters alot for example the fall of Crane Bank was partly because Sudhir wined and dined with fake people i mean how can you be elected by forbes magazine as the richest man in E.Africa and you chill with the likes of Kabonero Sudhir should have hanged out at Golf or Polo Club.
    4.The idea of a free market across Africa may work in East and Southern Africa where there is stability but not in parts of Central and north Africa where territories are held by rebels backed by mafia sort of businessmen
    5.Bishop Lwanga has realized that Vatican prefers Odama to be the cardinal thats why he is behaving the way he does
    6.At JKF airport you pay 6 dollars for a luggage cart yet at Entebbe its free so if USA charges for simple things like a luggage cart why shouldn’t govt tax whatsapp
    7.Is ICUEA university serious i mean which administration allows advertisements for Comedy night to be displayed on their gate i saw this on my way to Munyonyo.

  3. Just like China that stormed the world market about 20 years ago and is now a threat to Europe and USA,Africa can also rise economically but the question is how do we get there?Otherwise for now its in the interest of the 1st world that we remain poor so that we continue procuring their products.

    • ejakait engoraton

      AND those 1 st world countries have enough puppets by way of AFRICAN despot presidents who , for a pittance , are prepared to and are actually advancing their interests.

  4. I am late on this simply because of the ongoing “age limit petition. I want to think that the appointment of Deputy Chief Justice Owinyi Dollo is/was the next best thing President Museveni has done in a long time after the firing of the then prime minister Amama Mbabazi. The man possesses a subtle way of “whipping” his fellow judges, a natural way of looking over the courtroom as if he were the proverbial alpha male gorilla in the zoo. Whichever way this petition goes, at least, justice was seen to be done.

    Looking at this article, one might not have to wonder whether this were simply one more example of a superficial journalistic dichotomy when Mwenda states, “One of the reasons many people admire President Paul Kagame is he matches his words with government policies. Rwanda is the only country in Africa that allows all Africans to get a visa on arrival.” Earlier on Mwenda notes, “Ramaphosa spoke eloquently on African integration. Yet South Africa imposed a visa ban on Rwandans because of a disagreement between Kigali and Pretoria during the Jacob Zuma administration.” If Mwenda is not praising Kagame for purposes of patronising, Kagame’s biorhythm and innards are not any different from any other of the African rulers/dictators. For Kagame to be accepted by Rwandans he had to first “shoot” at them- just like president Museveni did. President Kagame has had to “change” the Constitution in order to be “in situ” with his word. After a marked disagreement between the leadership of Uganda and Rwanda, the media has been awash with reports of Ugandans losing jobs in Rwanda under mysterious circumstances. It is, therefore, a facile distinction that Mwenda draws between Kagame and his African counterparts.

    On trade. Africa has not shown the need or seriousness to do business. For instance, how much of African produce constitutes to the world trade? Africa contributes $1.3trillion, equating to 2.5% of the world’s $54trillion. This means that either Africa produces largely on a “subsistence scale” or, what it produces is not “widely acceptable.” This is what Karl Marx talks about a “commodity” in his ‘Das Kapital.’ He defines the commodity as the nucleus of a capitalist system. The commodity, of course, is not simply a useful good or service but a useful good or service that is produced to be sold on the market at a profit. The underlying meaning is that a commodity fetches a profit. Marx notes that the market agreements were not the functions of a “free market” per se but by the “social conditions” under which the markets operated. I will give my personal experience to drive this point home. When I opened up my school I majorly relied on school fees to be able to carry out school financial operations. For instance, I could wait for school fees to be paid for me to pay staff wages and salaries. This was pernicious in a way that sometimes I would be pressed by financial deficits to negotiate an unfavourable financial credit facility. To make my case to a national level, Uganda because of the prevailing “social conditions” then, entered into an unfavourable contract with UMEME. Because of the prevailing social conditions, not so many investors were attracted to invest in Uganda. So, the question begs, ‘how does Uganda or for that matter, Africa change its “social conditions” to be able to sell its commodity at a “profit” on the international market?

    • Truly, as you put it, Kagame had to shoot his way to acceptance not as a president but as a citizen of Rwanda first (because some people especially habarimana type are hard to convince)……thereafter was elected as president and the electorate have not regretted it even once. He had remember been ejected in childhood and thereafter called a persona non grata in his birthplace. The handlers of the habarimanas and gang did not even bother to remind them that the Universal declaration of Human rights forbids to render any person(let alone a dispossessed citizen) a homeland. As for Rwandans being arrested in Ug, it cannot be blamed on M7;him not being a policeman (though it is said CMI is the arrester and Military is the imprisoner). Likewise Kagame cannot account for any Ugandan who is fired from a job in Rwanda unless he directs that Ugandans be fired from jobs. Even then, labour law would apply and Rwanda would pay through the nose later.
      As for Africans producing for subsistence only, it has been so for a long time and we are to live with it for as long government has its priorities upside-down like soliciting debts for roads and petroleum and concrete buildings and limousines and alcohol. Basic needs come first not last mbu after acquiring a luxury. When will petroleum buy food for a starving Karamojong or a needy street urchin? Yet they pay the debts incurred by the government.
      As for Mwenda’s waited for comment about who is right and who is wrong in the Uganda-Rwanda relations, the former Rwanda Ambassador to Ug, one Christine was asked by a journalist what her comment on the Kisangani clashes were. She assertingly replied (and I was there) that it was a very poorly asked question that purported not to extract an answer but a dig in her person….knowing that she was born,bred and educated in Uganda but is of Rwanda descent and representation…..warning the journalist not to do that again because it was asked in bad faith. Methinks it is so with M9 who is at home in both statehouses…..it really hurts and noone should wish it for another, knowing we are all under the sun. But give it all time and the great healer will deal with the matter.
      As for your school and the remuneration of the staff, unless you had funds stashed aside for philanthropy, it was only natural that you wait for schoolfees to meet your financial obligations knowing that a school is never personal (no matter what you gain by the venture) but public and the populace gain a billion times more and longer than the foundator. It is like marrying and siring kids; don’t expect any returns. If they come fine but in 99 cases out of a hundred,they won’t. It is a calling whether you know or don’t.

      • ejakait engoraton

        YES, I know Christine UMUTONI very well.I know this is going to anger our WINNIE who says that I claim to be related to almost everyone who matters in UGANDA, now I am claiming the same in RWANDA, never mind that I just said I KNOW and not related. So what sort of LOOYA is this who can not even remember a simple fact like that.
        SHE was the first minister of Rehabilitation in the post 94 government; her office was based on the KABUGA building on BYUMBA road. We had a contract to supply items to the newly established KADOGO school, among them 4000 metal suitcases which we had fabricated locally. We were also required to supply 4000 towels and bed sheets, and had to settle for cheap bedsheets from China. The towels we ended up having to order them from UTEXIRWA, which is the Rwandan textile mill, simply because they were not being made in Uganda.
        We also had to renovate their house in KIYOVU , where she was living with her husband Afande HODARI, who is the brother to now Col/Brig DAN, who was popularly known as “Chuck Norris”.

    • A remark I forget to stress Rajab is that Education is the ONLY known investment that never incurs loss. The educator is eternally remembered and since noone goes with what they own, who knows, maybe educators will be rewarded in the hereafter if they don’t here and now.

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