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Last week (01st May 2008) I attended a panel discussion exploring the role of business in transforming the use of Africa's natural resources. The event was a huge eye-opener for me and really challenged my thinking about the vast resources that mother Africa has and why she still remains so poor. Africa has been richly blessed with vast amounts of natural resources, including diamond, gold, oil, copper, uranium, rare gems and the list goes on. It is estimated that Africa has 60% of the world's diamonds; 40% of the world's phosphates; 30% of the worlds cobalt resources; 10% of the world's proved oil reserves and 8% of the world proved gas reserves. It is no wonder that many people wonder why then is Africa not rich. Are these riches its curse? On one hand, natural resources are undoubtedly a great source of revenue for the continent. These revenues can then be invested in vital social services such as education, health and infrastructure. A good example of this is Botswana, where revenues from Diamond have helped fuel its economic boom. However, valuable natural resources can be a source of conflict. Is it a coincidence that the countries with vast resources tend to be at war? (Sierra Leone is just rcovering!) Corruption levels also tend to be high as people try to get a piece of the action for themselves - personally! The discovery of natural resources also tends to be a huge distraction from other important issues facing a country. All attention is focussed on exploiting these resources often at the expense of delivering much needed public services. The other problem with striking ‘oil' or any other resource for that matter is that it breeds what I'd call a ‘lottery winner' mentality. Having not worked hard for the revenues, it is easy to spend the revenues without thinking of the long-term. Nicky Oppeinheimer, the chairman of De Beers, opened the debate by asking the million dollar question - How can we make the wealth that sits in Africa become the wealth for Africans. His speech took two minutes and got straight to the point, but as someone who is ranked number 18 in UK's Rich List (see Sunday Times 27th March 2008) I suspect he has a few ideas under his sleeve. The debate panel consisted of three renowned speakers. Professor Paul Collier - Director of the Oxford Centre for African Economies and author of the award winning "The Bottom Billion"; Dr. Nkosana Moyo, a partner at Actis, a leading private equity firm. He was a former Deputy Director at the IFC and was a Minister of Trade and Industry in Zimbabwe and Jane Nelson, a Director of the Corporate Social Responsibility at Harvard Kennedy School and a prolific author on the role of business in society. Paul Collier discussed the resources trap that many African countries find themselves in. On discovering valuable natural resources, many African countries are filled with hope, excitement and in the short term ‘the only way is up'! However, things never seem to turn out that way in the longer term as conflict, corruption and mismanagement sets in. Paul reckons that this is mainly due to weak governments and governance systems. He highlighted two important ingredients of strong democracy - a robust electoral process and strong accountability (i.e. checks and balances). Some countries, such as Nigeria, have a very strong electoral process but poor checks and balances. Others, such as Botswana, have strong checks and balances but very poor electoral engagement. This dichotomy is often profound in economies where there is no direct linkage between taxes and government revenue. Where a government's main (if not the only) source of revenue is from natural resources that the citizens have not really laboured for, the citizens engagement with the electoral process can be poor. However, if the governments main source of revenue is tax (as in many countries in the west), then the citizens are provoked to ensure that there is strong accountability - they can clearly see the linkage between their hard work and the governments revenues. It's their money that the government is spending! This linkage is not often clear, or indeed existent, in many African countries. Nkosana was a bit more frank with his views on this issue. He was not convinced that there is a correlation between the amount of natural resources and the strength of governance in a country. He reckons that there is a fundamental weakness in many African institutions that limits their ability to capitalise such vast resources. I have to admit that I am drawn by the argument that our institutions have a threshold of challenges or indeed success that they can deal with. For some, making profits in Africa is considered sacrilegious. It's okay to make money anywhere else, but in not Africa! But if companies don't make profits how can they create jobs and more importantly, pay taxes. Using charitable funds to deliver public services may work in the short term, but this is not sustainable in and won't provoke the need for accountability from locals. I think the ‘charity mentality' is just as bad as the ‘lottery mentality'! Africa needs lots of profitable local companies. It needs large companies that employ thousands of people and pay sufficient taxes that can then be used for public services. But where will a breed of large African companies come from? Can large western countries genuinely transfer their skills and capacity to the African countries without risk of loosing their competitiveness? In concluding the debate, the director of the Royal African Society, Richard Dowden, reminded us of a key new player in Africa - China. China is hungry for resources and they are crawling all over Africa for it. But this is a double-edged sword, I believe. It is a good thing that China is interested in Africa. They are bringing in much needed investment and cheaper credit. The more players there are, the more competitive the market is and the more options that governments have. China is also coming with a different philosophy from the west - one of non-interference. Many African governments are admittedly glad to have a partner that will not tell them how to govern their countries. However, Africa needs to be watchful. China is entering Africa, very much like the west did centuries ago - with a selfish interest. They are there to make a profit and satisfy their hunger for resources required to meeting their growing economies. Africa provided much of the resources (both human and natural resources) needed during the industrialisation of the west. It would be naïve to believe that East is in Africa to do business and nothing more. Similarly, it would be naïve to believe that the West is Africa with purely African interests at heart. In conclusion, I'd say that Africa need to find ways to accurately value its resources, negotiate hard to get the best deals and work hard at ensuring the revenues raised are used to benefit the African people. This is a role for both government and the public sector, as well local and international companies.
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