Commentary

Shield Africa’s Wealth from Self-Serving Political

By Moeletsi Mbeki
This article originally appeared in South Africa’s Business Day on April 19, 2005.
With few exceptions, Africa’s political elites have driven their countries’ economies backwards. In a recent publication — entitled, Can Africa Claim the 21st Century? — the World Bank noted many observers had expected Asia to remain mired in poverty while Africa steamed ahead. A comparison between Ghana and South Korea, which were at a similar level of development in the 1960s, shows the opposite has happened.

At the root of Africa’s problems are ruling political elites that have misused the economic surplus generated over the past 40 years. African political elites have exploited their position in order to:

  • Bolster their standard of living to western levels.
  • Undertake money-losing industrialisation projects that were not supported by the necessary technical, managerial and educational development.
  • Transfer vast amounts of money from agriculture and mineral extraction to overseas private bank accounts, while borrowing vast amounts from developed countries.
What were the results of those predatory policies? According to the World Bank and the International Monetary Fund, Africans are poor and getting poorer. In fact, many people in sub- Saharan Africa have fallen so far down the economic scale that it is hard to imagine them getting poorer.

African states as we know them today were not created by Africans. With a few exceptions, such as Egypt, Ethiopia, Liberia and Sierra Leone, they were created by European imperial powers that had little regard for ethnic and religious differences among Africans. The arbitrary nature of boundaries explains in part why over the past 30 years Africa has experienced civil wars, intertribal wars, violent communal conflicts and pogroms, wars of secession, and, more recently, in the Great Lakes region and in parts of the Sudan, genocide and ethnic cleansing.

The states that the African political elites inherited from the colonial powers often served as tools of political oppression but also of economic exploitation through such instruments as poll taxes and forced labor on plantations, mines, and infrastructure projects.

The introduction of cash crops provided the state with revenue that the colonists used to consolidate power over the local populations. State corporations or favored private monopolies from the colonial power bought cash crops from the peasants. Either way, the farmers got the worst end of the bargain, as they were paid at far below world market prices.

The political elites that took over African countries in the 1960s saw government as a source of personal enrichment. One of the great pioneers of this scramble for power on the eve of Africa’s independence, Ghana’s Kwame Nkrumah, urged the emerging political elites: “Seek ye first the political kingdom and all else shall be given.” The history of Africa since the 1960s is thus the history of groups of elites seeking the “political kingdom,” with the primary purpose of enriching themselves.

All modern schools of political thought, from Marx and Lenin to Hayek and Friedman, agree on at least one thing: the private sector is the driver of modern economic development.

The acts of production, exchange and consumption constitute the modern capitalist economy. To produce more, private individuals must generate savings and plough them back into the production process in the form of improved techniques, processes, and products. That is the logic of capital accumulation. To accumulate more value, you have to produce more value. To be able to consume more, you must be able to do the following:

  • Raise your labor productivity by using more capital. That in turn requires you to accumulate more capital or save.
  • Use capital and labor more efficiently. That may come from technological improvements or entrepreneurial alertness to opportunities to reduce waste.
Those who cannot use their capital most efficiently tend to have less of it than others. Alternatively, less efficient producers are “bought out” by more efficient producers.

If we consider the peasant household as a firm, Africa may have one of the largest private sectors in the world. Most Africans live and work on small farms that populate the countryside. Theoretically, therefore, Africa should be a hive of economic activity. What has gone wrong?

Africa’s private sector is predominantly made up of peasants and, to a lesser extent, subsidiaries of foreign-owned multinationals.

But those groups are dominated by the unproductive political elites who control the state. Africa’s private sector is powerless. It does not have the freedom to maximize its objectives. Above all, it is not free to decide what happens to its savings.

African political elites use their control of the state to extract the agricultural surplus or savings. Were the peasants free to retain that surplus capital, they could invest it in improving their production techniques or diversifying their economic activities.

A great deal of what is consumed by Africa’s political elites and the states they control is imported. This acts as a major drain of national savings that would otherwise have gone into productive investment in Africa. That is the secret to Africa’s growing impoverishment despite its large private sector. The more the political elites consolidate their power, and strengthen their hold over the state, the more the peasants are likely to become poorer, and the more African economies are likely to regress or stagnate.

European joint stock companies have operated in Africa since the dawn of the capitalist era. One of the most famous, the Dutch East India Company, started the colonization of South Africa in the mid-17th century. During the scramble for Africa, those companies followed close on the heels of the conquering armies of the colonial powers and established plantations, mines, railways, harbors and new cities. Later they diversified into making consumer goods for the burgeoning African market.

When African states became independent, foreign corporations lost their colonial protectors. Before long they, like the peasants, fell prey to the appetites and whims of the new political elite. The lucky corporations were nationalized, the unlucky ones were confiscated by individual politicians. Many corporations survived as best they could. They bribed the elite or found ways of ingratiating themselves with their new masters.

The political elites in sub-Saharan Africa largely refrained from seizing the heavy manufacturing and mining companies. Foreign-owned companies, therefore, still dominate those sectors, with state-owned enterprises or parastatals increasingly playing a minor role. A recent study by the World Bank showed that the most productive companies in, for example, Nigeria, were those owned by multinational corporations or by non-African industrialists, including Indians, Chinese and Lebanese.

All of those owners are easy targets, however, as they are not represented within the political elites. Like the peasants, they are subjected to all sorts of official and unofficial taxes.

That is another way that the African political elite contributes to fostering Africa’s underdevelopment. Because political elites obstruct the operations of industry and divert profits to elite consumption and capital flight, Africa’s manufacturing industries are unable to grow and, therefore, create employment for all types of workers.

Though part of sub-Saharan Africa geographically, South Africa has two features that distinguish it from the rest of the region. First, South Africa does not have a large peasantry. Second, its private sector is owned mainly by its own citizens.

In addition, during the struggle against apartheid, the current political elite was compelled to enter into an alliance with black urban workers. Central to the interests of the black workers and private-sector owners is job creation for the former and profit maximization for the latter. Those two forces, therefore, have a common interest in promoting economic growth and minimizing the private enrichment of the political elite. That is what makes South Africa different from the rest of the region and what accounts for its ability to grow its economy while the rest of sub-Saharan Africa is stymied by the deadweight of consumption by political elites.

That argument does not, however, mean that the political elite in South Africa will not try to enrich itself at the expense of private-sector producers. Black economic empowerment is in reality an attempt to siphon savings from private-sector operators. The fact that empowerment has proved to be more of an uphill battle than the political elite expected is due to the ability of the private sector to resist dispossession. Time will tell who will come out ahead in what could be a titanic struggle by the political elite to “privatize” the wealth of South Africa’s current private-sector owners.

An even bigger question is what effect such struggles will have on the growth of the economy. The political elite is being encouraged to pursue black empowerment by elements of the super rich who seek political favors from the state in order to: externalize their assets by moving the primary listing of their corporations from the JSE Securities Exchange SA to the London Stock Exchange; get the first bite of government contracts; and buy seats at the high table of economic policy decision-making.

In 2001, most African governments adopted the New Partnership for Africa’s Development (Nepad). While Nepad may address some of the worst excesses of the political elites, it does not address the fundamental problem: the enormous power imbalance between the political elite and key private-sector producers.

If the driving force behind sub-Saharan Africa’s underdevelopment is the structural powerlessness of producers, and therefore their inability to retain and control their savings, there will be no development in sub-Saharan Africa.

So how is that to be reversed, and by whom? Development in sub-Saharan Africa requires a new type of democracy — one that empowers not just the political elite but private-sector producers as well. It is therefore necessary that peasants, who constitute the core of the private sector in sub-Saharan Africa, become the real owners of their primary asset: land.

In addition to generating wealth, private ownership of land is the only way in which rampant deforestation and accelerating desertification can be addressed. That means that freehold must be introduced and the so-called communal land tenure system, which is really state ownership, ought to be abolished.

Moreover, peasants must gain direct access to world markets. The producers must be able to auction their own cash crops, rather than be forced to sell them to state-controlled marketing boards.

Sub-Saharan Africa needs new financial institutions that are independent of the political elite and can address the financial needs not only of peasants, but of other small to medium-scale producers as well. Those could be cooperatives, credit unions, savings banks and so on.

In addition, those institutions could undertake all the other technical services that are not being provided by African governments, such as crop research, extension services, livestock improvement, storage, transportation, distribution and many other services that would make agriculture more productive.

Foreign donors could play a role by helping such institutions with expertise and management and shielding them from predation by Africa’s political elite.

These changes could for the first time bring into being a capitalist market economy that answers to the needs of African producers and consumers.

If Nepad is to contribute to Africa’s economic development, it must help redesign Africa’s political economy so that it protects the rights of private sector actors instead of rent-seeking political elites. Nepad must devote more of its time to addressing fundamental issues related to the African political economy rather than to impressing foreign governments, such as those in the Group of Eight, with inflated accounts of democratization on the African continent.

Mbeki is deputy chairman of the South African Institute of International Affairs. This is an edited version of his paper — Sub-Saharan Africa: The Role of the Private Sector and Political Elites — which was first published by the Cato Institute.