2020/2021- The Year of Economic Reckoning?

2020/2021- The Year of Economic Reckoning?

Two weeks ago the IMF paid a visit to Namibia. They were not here for their regular annual Article IV consultation but something far more serious. They were undertaking a Macroeconomic Risk Assessment of the country. The report now in wide circulation has one outstanding feature. The Action plan and interventions the government is supposed to implement are all dated 2019. That means the IMF expects the government to implement what it sees as the necessary economic reforms on the economy before the election scheduled which is scheduled for around November 2019.

To say the least many of the reforms proposed by the IMF are not exactly vote winners and as a result the obvious question arises as to whether the government will have the political will to implement these reforms and lose votes at this time. What are these reforms? By and large they involve cuts in government spending. The most obvious change that the IMF has pointed towards is what emphatically calls ‘Reduction in  the expenditure rigidities’ and  ‘greater flexibility’ in public sector wages. The barely veiled intention is to lower real wages in the public sector and/or to decrease employment. Recently the governor of the Central Bank Mr Iipumbu Shiimi bemoaned the enormous wage bill of the government which currently stands at 50% of the country's revenue, and 16% of the gross domestic product (GDP). “If we add state-owned enterprises, the wage (bill) goes up to 70%,” he stated, adding that the workforce stands at 117 000 public servants, with a wage bill that has shot up from N$13 billion to N$30 billion over the past years. The IMF’s version of flexibility means only one of two things for Namibia’s public sector employees, either lower wages and/or even more unemployment.

But wages are only one of a slew of measures that the IMF is expecting the government to grapple with in 2019. Probably just as important is a bloated state-owned-enterprise sector where many lose money hand over fist. The partly state owned but privately managed Windhoek Golf Club, is run by efficient external managers who handed the government a revenue check of $6 million this years as it does almost every year. On the other hand the state owned parastatal Namibia Wildlife Resorts (NWR) and owns numerous hotels and resorts throughout the country lost suffered losses amounting to N$126 million over the last two years. Of these losses, N$40 million was reportedly  incurred this year, while N$86 million was for last year, indicating that things are looking up?  If the lessons are not clear then it is because someone doesn’t care- state ownership without private management is a recipe for sustained losses.

What is more we have just acquired another SOE - Namibia is a 51% share holder in Peugot PSA plant in Walvis Bay. And the Council at Otavi has taken a 20% share in the new steel mill. It is normal practice for local governments that take a financial interest in a business and these holding are guaranteed by the national government. But not all SOEs lose money. Nampower as well others like Telecom , for example, has been earning profits but it is the exception. The real threat is not these investments nor is it even the enormous losses of many SOEs like Air Namibia which lost $1 billion in 2017 but the heart of the problem is political- the belief by government  that government can solve the nation’s problems through ever more state ownership.

State ownership and the ensuing losses of SOEs are just part of the nation’s economic problems. The IMF has identified a more fundamental issue and that is the massive investments in infrastructure by SOEs and the government directly that are drowning the country in unsustainable debt. The proliferation of new buildings from Home Affairs to the Police to NATIS in Namibia along with huge white elephants like the Medical faculty at UNAM, the completely unnecessary expansion of the container facility at Walvis Bay and the multi-billion dollar oil storage facility at Walvis Bay along with the four lane freeway to the airport are all examples infrastructure investment that have never been subjected to rigorous analysis!  But the remedy to this potentially disastrous proliferation of unjustifiable investments suggested by the IMF simply won’t work. The IMF has suggested that Namibia ‘Develop a gatekeeping mechanism that serves as a check and balance for the business case of each investment project through multi-stakeholder engagement (NPC, portfolio ministry, MoF and public entity)’

Getting Planning, Finance and the line ministry involved to determine which investments have a good business case and which do not is akin to inviting Dracula into the blood bank! For Dracula, all blood tastes good.  These line ministries along with the National Planning Commission will not say ‘no’ to a powerful minister who wants a project that may make no commercial sense. He may want the project for reasons of ego or reasons that even far less salubrious and the ministers will normally get their way.

The only way to have a real ‘gateway’ that ranks projects and stops completely sub-economic projects infrastructure project from bankrupting the nation is to have a thoroughly independent assessment of the economic cost and benefit and a ranking of investments which are best done by the national assembly in free and completely open evidence based discussion.

If the government does not do what the IMF asks in 2019 what will happen? Nothing so long as we don’t need a loan from them. But the IMF has asked for implementation of all this because Namibia is sitting a on an economic precipice and we will fall in shortly. In 2021 Namibia has to roll over a US$500 million ( $N6.5 billion) Eurobond on the money markets. The last time we went to the money markets we got the loan at 5.75% but then we were still labelled by credit rating agencies as being investment grade. Now Namibia has acquired ‘junk’ status and when we go back to the money markets we will be lucky to borrow at 10% and the loan could well be under subscribed. If we are going to have roll over debt at such high interest rates or not be able to raise sufficient funds from the market then we will have no choice but to go cap in hand to the IMF and then the proverbial will hit the fan.

IMF adjustment loans are ugly things. The boys and girls from Washington will take over the management of the economy and the IMF will force government to cut back wherever it feels it is necessary in order to assure that Namibia repays its debt. It will be the poor and public servants- policemen, teachers and nurses and doctors who will suffer the most.  

These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.

Is the African Development Bank really helping Develop Africa?

Is the African Development Bank Helping African Development?

In October the Namibian Minister of Finance Mr Calle Schlettwein was reported to have asked the Minister of Works, Mr John Mutorwa to suspend two major AfDB funded projects, one on the development of the railway from Walvis Bay to Kanzberg and the second the long expected freeway to the airport from Windhoek. These are part of the  $10 billion AfDB loan to Namibia for the construction of infrastructure projects. The reason that the minister asked for the deferral is that the pre-conditions required by the AfDB for companies bidding in effect excluded Namibian firms because they required the firms to have capital, track record and assets that were such an order of magnitude that they could meet the minimum tender requirements.

The Deputy Minister of Works Mr Sankwasa was quoted as saying that the threshold requirements for participating in the tender are too high and in effect block Namibian construction firms from the tenders. According to the report firms are required to have a 5 year balance sheet which shows the applicant has long term profitability and has a cash flow of $N 130 million ( US$10 million). The report also states that the tender documents expect the applicant to have a minimum average annual construction turnover of $800,000 within the last ten years.

This raises first the issue of whether companies that are so small should be involved in major international tenders. What commonly happens in construction contracts is that local ‘tenderpreneurs’ will take a contract that they cannot implement and then sub-contract to a much larger international firm where this is permitted.  All over Africa this allows party apparchnicks to get a share of the action on tenders who have no capacity to implement. The question is whether government wants the project properly implemented by large firms or does it want someone who is connected just to make money. One of the important and legitimate objectives of government is to develop a national entrepreneurial elite and this very ugly business of handing out tenders is an integral part of that process.

Mr Sankwasa is quoted as saying ‘If Namibians are the ones who will pay back this loan, why put threshold they know Namibians wont meet? The ADB is African. Is what they are doing being African? What does it benefit Africa then? You are simply saying Namibians should not participate.’

There are always two reasons for every commercial action- the good reason and the real reason. The good reason for this AfDB threshold is to assure that the project is implemented by companies that have the wherewithal to finance and implement the project. Giving a major project to too small and inexperienced an African firm will simply mean they are doomed to fail. The real reason is that Mr Sankwasahas a romanticized vision of what the AfDB does.It is first and foremost a bank and those who provide its capital expect to be repaid just like any other bank. But the AfDB is a very political animal. China, the USA the UK, France Germany  and whole host of other ‘generous donors’  sit on its governing board as non-regional members and whose firms tender for these projects. The AfDB may be run by well dressed and well groomed Africans who speak immaculate French and English but whose interests these people serve is entirely another matter.

The AfDB has good reason to impose minimum financial thresholds to assure that illegitimate politically connect tenderpreneurs do not get projects that they cannot possibly implement  but whom  it benefits are the non-regional members who want to see the money they loan for ‘African development’ boomerang back to them in the form of construction contracts for their large construction firms.

The AfDB has many instruments that can in theory help African firms. According to the AfDB procurement rules, countries ‘may’ provide preferences for local firms in tenders which amounts to 15% over non-local bidders for manufactured goods and related services and 10% for construction works.  This amounts to nothing more than an empty  best endeavor provision. There is no ‘shall’ in the language and the country must get the agreement of the AfDB first. Using the word ‘shall’ would mean that countries would have more debt to the borrowers AfDB because they wish to help local firms. As long as this someone is connected this may not be an issue but it should.  This does not help Mr Schletwein or Mr Sanakwasa because Namibian firms are too small to even get in the door. If Mr Snakawasa really wants to be  a developmental minister he should do what the Koreans and Japanese did when they found that their firms could not compete with the Europeans and Americans- they helped them form cartels or ‘chaebols’ in Korean. He must work to force small Namibian firms to work together to become big enough to compete.

 But the nice men and women who work for the AfDB are supposed to be helping Africa develop are not there for that. This benevolent bureaucrat  is just a figment of the imagination of African ministers. The AfDB officials are there to do their board’s bidding. They are not there to line pockets of tenderpreneurs. If they wish to help in the transformation of Africa they should create a preference that is pan-African in nature. In the coming decades Africa will be electrified, thousand of kilometres of railways and roads will cross the continent and this will be loaned to African countries  through the World Bank, the AfDB and the BRICS bank. In Europe and America and China these major infrastructure projects were the catalysts to transforming their countries when the investment was made because there were backward linkages to iron steel coal, aluminum and copper, zinc industries. This sparked real development and economic transformation but it will not in Africa because the backward linkages will be to Chinese American and European manufacturers. And if we are honest then it will be China, with its highly subsized base metal sector that will benefit the most.

If  Mr Schlettwein and the other African ministers who attend the lovely annual meetings of the AfDB  and World Bank were actually serious about doing something that will develop all of Africa they would force the board to implement a new preference provision which would give a neutral preference to Africa, not the tenderpreneurs. It is time the President of the AfDB Mr Akinwumi Adesin to show real leadership and create a truly pan-African rule of origin. The pan-African preference should read. ‘No African member country shall accept a tender from any company for an AfDB (or World Bank) project by 2025 which does not use 30-50% African content’. This would force Chinese, American  and European firms to invest in backward linkages in Africa.  This will transform Africa much more than helping line the pockets of some small well connected tenderpreneur whose first expenditure is so commonly a new Mercedez Benz . But the great powers who really control the AfDB and the World Bank will never allow such a thing unless they forced by real African leaders determined to transform the continent. Real transformational development will await the day that African leaders demand it and refuse to accept the continent’s centuries old position of ‘hewer of wood and drawer of water’.     

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed

Namibia's Great Depression

                                                      Namibia’s Great Depression

The economic situation for most people in Namibia over the last two or three years of fiscal austerity have been pretty dire. Employment has been in clear decline and unemployment rates in Namibia is estimated to be at 37.3% in 2017 according to recent reports, up from 37% in 2016. These are unemployment rates much higher than those found in the USA at the height of the Great Depression in 1933 which was 24.9%.  

Since  independence in Namibia in 1990 the growth rate of real GDP in Namibia has been an average of 4.25% which is considered pretty healthy by global standards. These are growth rates that most countries only dream of but they do not reflect the most biting fiscal austerity in the nation’s economic history and the resulting recession that began in 2016.

But what we have had in Namibia over the last few years is not a recession but what more closely approximates what economists refer to as a depression. So what is the difference between the two? The formal and widely accepted definition of a recession is widely accepted as when real GDP has been falling for two consecutive quarters. The definition of a depression is contested but is commonly defined when GDP falls for more than two years and GDP decreases by 10%. From 2016 onwards we have had at least two and a half years of negative growth and this fulfils at least one criteria of a depression even though real GDP in Namibian dollars has only decreased by 5% since 2015. But the economic situation that Namibians faces is actually much worse than these Namibian dollar figures suggest. 

Reality can never be easily captured by one single number but economists, the media, politicians and the public like simple numbers. A better way of capturing what has happened to the standard of living of Namibia’s people more accurately is not in terms of rand or Namibian dollar but rather to look at GDP per capita in terms of the world’s main trading currency the US dollar i.e. what Namibians can buy from the world market. Doing this we get a picture of the Namibian economic reality that probably looks far closer to what most of us understand at the end of the month. Based on NSA and Bank of Namibia data in 2011 the Namibian real GDP per capita peaked at US$5,684 and went into a steady decline for six years until 2017 when it reached a low of US$3,437 in 2010 dollars. This is a huge 39.5% decrease in US dollar denominated real GDP/capita for six years amounts to an economic depression by any reasonable definition. As we move to the point where 2018 figures become available there will almost certainly be another very substantial decline in real US dollar GDP per capita because the exchange rate has fallen to 14- 15 rand to the dollar.

We are arguably in Namibia’s worst ever depression when it is measured in US dollars. The recession immediately following independence was minor by comparison. But what has largely caused the US dollar depression is the exchange rate. In May 2009 when President Zuma came to power the rand was about 7-8 rand to the dollar. But by the time he left power in 2018 the value of the rand ie the Namibian dollar had halved in value to 15 to the dollar. There was a temporary recovery in the value of the rand in 2017 when our US$ GDP/capita rose but in 2018 the Rand is once again moving towards new lows against the US dollar. Much of the deterioration can be put down to the worsening perception of the South African economy and its prospects by investors. If the exchange rate between the rand and the US dollar had stayed at 2011 levels there would have been no “Great Depression’ but a modest 11.5% growth rate of Namibia’s real US$ GDP/capita between 2011-2017 rather than the 39.5% decrease.

But why does the US dollar matter at all to Namibia as almost everything that Namibia imports is from South Africa and so the US dollar should simply not count much? Wrong! We may buy most of our imports in rand but South Africa which produces a very large part of what we consume buy its inputs in US dollars and we are also importing more from outside of the SACU block and that means we pay in US dollars.  A halving of the value of the rand during the Zuma years meant that South Africans as well as Namibians are poorer and import less and therefore there is less SACU customs revenue to distribute as a result and it also means that the cost of everything that is bought from abroad to produce goods in South Africa is increasing.

But what is perhaps the most interesting issue is the interpretation of this ‘Namibian Great Depression’. The experts have been arguing that the current austerity and the recession are a result of a decline in SACU revenues or a result of slow domestic growth or excessive government debt or a host of other domestic factors. While much of this is true Namibia’s depression is very much an exchange rate phenomenon caused by South Africa and its turbulent politics and has little to directly do with matters in the country.

But simply blaming South Africa perhaps offers too much comfort to those Namibian policy makers who have done nothing to arrest this most remarkable economic decline. We have remained so connected to the South Africa and its rand because it is easy and comfortable for many at the top. What it has done for lives and livelihoods of Namibia’s working people and the masses of unemployed is quite another matter.

It is time for government to seriously rethink economic policy in Namibia before we slide into ever more dire poverty.

These are the views of Professor Roman Grynberg and Mr Fwasa Singogo (research associate) and not necessarily those of UNAM.

Strange Journeys along Africa’s Value Chains

 

Africa has massive quantities of natural resources whether they are minerals, oil or agricultural products or human resources and yet there is no transformation of these products into either intermediate products or final goods. In the SADC region, between the Congo River and the Cape are 250 million plus people with all the resources they need- minerals, fuel, land , water and industrious people to be as rich as the citizens of the developed world. Yet everywhere, with the exception of the sons and daughters of the elite,  there is poverty and massive unemployment and hopelessness for the younger generation. Everywhere and in all commodities Africa’s place remains at the bottom of the value chain. Africa, despite all the hype,  is as it was largely in the past, the proverbial ‘hewers of wood and drawers of water’ of the new and increasingly New Asiatic mode of production that we call globalization. 

 This is because the middle part of the value chain, that process whereby there is transformation of basic inputs is occupied by one or other country and small African states simply cannot produce at prices which are competitive.

Take two of Africa’s biggest resources- gold and diamonds. If the possession of unprocessed resources were enough to make a country industrialize then Africa countries like South Africa and Botswana and DRC would be huge producers of gold jewellery and polished diamonds. The cost of transporting processed gold and rough diamonds is a tiny portion of price and so the advantage of being close to a high value to weight item is very small indeed. That means getting both resources to a low cost centre is minimal and there is no advantage of processing them in Africa. India employs 4.3 million people process and sell diamonds and gold into jewellery.

This control of the value chain is true of even the most bulky commodities. With the invention by the Japanese of the super-bulk carrier in the 1960’s Japan became then and remains today the world’s second largest producer of refined copper ( after China) while having almost no copper ore , expensive electricity and expensive unskilled labour. All this was a result of deliberate industrial policy and the development of super bulk carriers by Japan which could bring copper from Chile and Indonesia to the great Japanese refineries at very low cost.

Coffee on the other hand should be easy for Africa to process but even this is not. After all Africa is the home of coffee and  unlike gold or diamonds it is a very low cost to weight item and therefore it should be easy to process in Africa where the coffee is grown.  But oddly it is Germany, without a single coffee bush outside a green house,  that is the world’s biggest exporter of green coffee and not Brazil, or Ethiopia or Vietnam  and Germany exports more green coffee than all of Africa put together. Why, because of logistics? Ground coffee has a limited shelf life and must be processed close to destination market or have easy access to the  supermarket shelf. The great European coffee firms import large volumes from Africa, Asia and Latin America and then export it in the same unprocessed coffee to other countries of the EU. They do not even process but because their flight connections are so good with the connections of other European countries they are a natural entrepot for a short shelf life green or even roasted beans which deteriorate within a few weeks. The trade in Europe is dominated by large European processing companies which know their market and that market will remain under the control of these firms. African countries have long harbored dreams of exporting processed coffee in volume but this will not happen until the day that Africa  has firms that are  national champions that are  sufficiently endowed that they can either merge with or acquire large European processors. So when it comes to one of Africa’s finest exports the continent remains largely confined to exporting green beans with European companies processing and adding the value.

But what of logs. This is one of tropical Africa’s biggest exports. Tropical countries like DRC Ghana Gabon Cameroon Congo are big exporters of tropical  forest products. Countries like Togo DRC and Congo have continued to ship out round logs with no value addition. But logging is amongst the most corrupt of industries globally. These logs are easy to under measure and mis-identify and therefore incur less taxes and royalties and usually result in bigger bribes for officials and ministers. But some countries have succeeded in moving down the value chain to the production of sawn timber and plywood and veneers. This includes relative success stories like Ghana where 76% of forest exports are now processed products and only 21% are logs.

Where Africa has universally failed however has been in the value added end product, which is commonly wooden furniture where all of Africa together exports no more $600 million per annum in 2016 and almost 55% of those exports comes from Egypt, which, to be polite is not exactly known as a forestry powerhouse. It shows once again that having the natural resource contributes little further down the value chain.

 

These facts are used by simple minded economists who argue against beneficiation of African raw materials. Why beneficiate, they argue? The ownership of the resource provides no commercial benefit down the value chain. Look at Egyptian furniture, or German coffee or Japanese copper or Indian diamonds. None of them have the natural resource and yet they can export in relatively large volumes at competitive prices. How can they do this? It is simply because they have worked out the ingredients for making their countries and those products in their economies competitive and are continuing to work at it because they know it is competitiveness that matters. That is what is missing in Africa, not a policy direction on a range of products because it does not matter whether it is beneficiation of diamonds or the manufacturing and export of refrigerators. What is missing is a political elite that ‘gets it’ and knows that success for Africa rests on becoming internationally  competitiveness and is willing to do whatever it takes to make their countries competitive. Some economic managers in Ethiopia and a few other countries understand competitiveness but the rest are mostly  feeding their citizens empty and absurd platitudes about an industrialization that has not occurred and will never occur unless there is profound shift in policy thinking in Africa. And so the children wallow in shanty towns or worse, drown in the Mediterranean dreaming of a better life in Europe because their own homes offer no employment possibilities and a future of misery and poverty.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where his employed.  

Mr Tweya's Toothpicks

Mr Tweya’s Toothpicks

Earlier this week the minister responsible for Trade and Industrialization Mr Tjeroko Tweya pointed quite eloquently to the fact we do not even produce toothpicks in Namibia. What cannot be avoided is the fact that the minister responsible for industrialization got up and said that after 28 years the cornerstone of Namibia’s economic policy i.e. industrialization is so clearly a failure. The question is why have we failed to industrialize?

The reason is simple enough – we cannot compete with our neighbors, let alone the economic giants of China and India. We cannot compete because our costs are too high and this is largely, but not exclusively because professional labour costs are high along with much of the costs of setting up and running a business in this country. But there is another reason that is also obvious, we are simply too small to industrialize. Even though we have access to the huge SA market through SACU,  that proves to be a commercial liability not an asset as larger and more cost competitive South African producers can just as easily sell into Namibia as vice versa.

Let us assume that you are unwise enough to establish a tooth pick factory in the SADC market. First you would have to compete with Chinese toothpicks which are low cost with toothpicks produced in the billions for a nation where picking teeth after a meal is widely practiced. The economies of scale that the Chinese have would simply make any small scale operation in Africa commercially unviable. We would need high tariffs against Chinese imports. Assume that you can compete with China which is a mighty assumption – where would you locate such a factory in SADC? You would not choose Namibia but rather Gauteng where all the inputs and skilled and specialized labour and services are located. Alternatively you would choose a place close to the raw materials ie. either bamboo or hardwoods but close to markets. The only place close to materials that could be used would be in the North but that would mean that you would have to ship your toothpicks to South Africa. Who would you sell your toothpicks to? The South African owned supermarkets of course, but they hate buying from multiple sources. They want their toothpicks delivered to one location, usually in South Africa and then distributed through their trucking networks to all their supermarkets. Multiple points of sale and distribution are totally against the modern supermarket model which exists because products are bought in bulk to one place and then distributed.

What is true of toothpicks is unfortunately true of almost everything that is manufactured whether it is refrigerators or cut diamonds or gold jewellery. We simply cannot compete and as a result our children have no jobs. All we can do is make holes in the ground to extract minerals and ship out our rich fish resource.  There are two ways to deal with our high cost structure but they are both would be about as politically popular as cancelling Christmas. The first is to bring in large numbers of African and possibly even Asian professionals to Namibia. This would drive down salaries of the professional elite in Namibia, both the old and new, would suffer a significant decline in their living standards. The second option is easier but even more painful. Namibia could decouple from the South African rand and continue to devalue the Namibian dollar until the cost of producing manufactured goods in Namibia is competitive with Asia. This would take a real devaluation of between 30-50% according to recent estimates and will lower everyone’s living standard. The suffering that such a policy would create, especially for the poor,  would need to last for at least ten years before real positive results occurred in terms of increased industrial production in Namibia.

So neither of these hard policies will happen and this is precisely why Namibia’s children will linger in unemployment. But what Mr Teywa, as an honest man, should now do is to go to cabinet and tell his colleagues including the Prime Minister and the President that Harambe, as currently designed, will not work. Furthermore, the country does not have the stomach for the painful economic changes needed to make industry competitive. Such honesty would earn the good minister an immediate dismissal from cabinet for his troubles. It is thus up to the President Geingob to face the truth that Harambee needs to be re-jigged and we need another road for Namibia.

Fortunately Namibia’s predicament is far from impossible. Namibia is a spectacularly beautiful country with tourism potential in abundance. Historically, the closing of the ‘sperregebeit’ in the south and northern part of the Skeleton Coast to only the super-rich who can fly in to the north has stopped Namibia from being what it could be, which is the most fascinating dessert journey in the world. Tourism arrivals are growing rapidly and will, with fluctuations continue in the future. Agriculture also constitutes an enormous opportunity given the discovery of the Ohangwena II aquifer in the north which is often described as ‘oceanic’ in proportions and enough to supply water for Namibia for over 400 years. We are in fact a water rich nation, not water poor. Only those who have never visited a cattle feed lot, a modern piggery or a poultry producing facility can still naively think that agriculture is not industry. A shift to agriculture can easily be fitted into a revised Harambee where we use what we have in Namibia to provide thousands of rural jobs rather than dreaming of industrialization. Sudan has used the equally large Sudanese aquifer to become a major producer of fodder for export to Saudi Arabia.

Mr President, our policies of industrialization are not working and will not work without imposing terribly painful economic reforms. Your ministers are all telling you this and the mark of a great leader is one that examines the situation and concludes that change is necessary. To continue on the current path is to condemn a whole generation of young Namibians to virtually permanent unemployment and yourself to historical oblivion.

These are the views of the Professor Roman Grynberg and not necessarily those of  UNAM where he is employed.

The Mother of All Gold Thefts

The mother of all gold thefts?

Over the last five years there has been a steady drum beat of reports  issued by various international agencies including the UN, by ECA and the by the African Union all suggesting that there has been massive a wholesale looting of Africa’s resources by the mining companies. All the reports have come to the same conclusion that those exporting  resources from the continent have been under-invoiced them ( selling them below the real or so-called arm’s length price) and the profits siphoned off through third country jurisdictions, often tax havens to avoid the payment of taxes and  royalties.

For thirty years I have been investigating these sorts of legal and illegal frauds from the tuna fisheries in the Solomon Islands to logging industry in Papua New Guinea to diamonds in Botswana. In all of them the common cause was to make more profits and the common method was fraud and deceit to avoid the payment of taxes. Those who are honest and study these sorts of resource sectors confront this all the time but they normally turn their heads and look the other way because the reality of international trade in these commodities is just too ugly to face and respectable people do not dwell on such matters. I have no doubt that many but not all mining companies would have no compunction about looting Africa’s resources  but some of the estimates that have been thrown about have been so outrageous that they defy credulity.

The report on the ‘mother of all resource rip-offs’ was published by the United Nations Conference on Trade and Development in 2016. In their report the UN  suggested that between 2000-2014 the gold mining companies in South Africa had under invoiced some US$78.2 billion in gold alone. How did they get to this number? They argued that  anything more than a 10% difference between what South Africa says it exported and what the receiving country says it imports was deemed to be some form of trade malpractice. Translated into Rand at today’s exchange rate that makes it about ZAR1 trllion. It is sum so immense that it makes the Guptas look like choir boys. But it is merely the latest in an outpouring of such gold thefts estimates that make the mining companies look like Ali Baba and the 40 thieves.

Needless to say South Africa’s gold miners and the Chamber of Mines did not take these estimates well and sprung into action, hired a consulting firm and lo and behold came up with a much smaller estimate because the data that was used by UNCTAD was simply unreliable and just about  everyone in international trade knows that you take the international data base produced by the UN ( Comtrade) with a  sack  of salt. Eunomics, the company hired by the Chamber of Mines eventually found much more reliable data. After much digging they found the gap between exports from SA versus imports from trading partners to be USD 19.5 billion and not USD 78.2 billion. This they explained could be caused by errors in reports with trading partners. So no theft after all, maybe!

The interesting question is how is it that South Africa, a country that was for  decades the world’s leading exporter of gold could possibly not be able to tell anyone exactly how much gold was  exported and where it went at the press of a button. The UNCTAD report caused a minor sensation with the South African Revenue  Service defending itself against the  implied criticism that they were completely incompetent. After 150 years of exporting gold and having produced somewhere between 35-40% of the world’s total gold stock this report made the South African authorities look  extraordinarily incompetent. 

South Africa is not alone in having dodgy gold trade statistics. If you look at Namibia’s trade figures you would think that Namibia produced no gold at all. This is far from the truth and if you check the  Namibian Chamber of Mines statistics you will see that total production  in 2016 was some 6.6 tonnes of gold. This minor stuff in comparison to South Africa’s 150 tonnes but it is growing. While Namibia used to be a small producer,  B2 Gold has increased the country’s production substantially. At the 2016 gold price and exchange rate the value of gold production this was N$3.7 billion Even if one deducts  several percentage points for  transport and refining the sum would make gold the country’s fourth largest export and yet not even a mention in the trade statistics. There is greatly increased interest in gold exploration in Namibia by the junior miners and no doubt this is set to increase. The reason I  was told that the figures do not appear was that gold is subsumed under diamonds. 

Why does Africa seem to care so little about trade data? The reason is  simple enough when a Minister of Finance is given the choice between allocating funds for trade data and funds for education, health or the police the choice is pretty obvious. But this is very short-sighted because if you do not monitor effectively  we will lose the revenue.  In Namibia we do not know what  we export and where it actually goes. Switzerland  is still the biggest destination but Switzerland says it buys almost nothing from us. All this indicates is that we have no idea as  to whether we are actually being cheated by the mining companies as that requires even more data.

It is essential that African countries work together to not only improve trade statistics so there can be certainly what is going out and where to but that we know what price it is going out at. Unless exports are monitored and cross checked by competent authorities then the resource exporters will be merciless in their exploitation of the fools and incompetents who do not bother and not check thoroughly what actually leaves their country.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Water and the Future of Namibia

About three weeks ago the Geologists of the German Federal Institute for Geosciences and Natural Resources BGR who have been working for several years here in Windhoek announced what is amongst the most important mineral discoveries in the history of Namibia at an evening presentation at the Namibian Scientific Society. If the mineral in question had been oil or gas or diamonds or gold the presentation would have been the front page of every newspaper in the country  and in Africa but the mineral in question was far more important but far less valuable at least when measured by market prices. They had announced that massive aquifer at Ohangwena II  did not contain 5 billion cubic litres of the ‘mineral of life’ i.e. H₂O or  water but contained 20 billion cubic metres. For years when it was believed that Ohangwena II contained only 5 bcum of water it was said that it was enough for hundreds of years of Namibia’s water consumption. Now we have enough water to truly say that country is truly water rich.

 But in Namibia no-one outside the Ministry of  and Agriculture Water and Forestry seemed to care and yet  Ohangwena II is a game changer for  the Namibian economy  because  it is precisely the sort of discovery that can give the country the real economic boost it needs to be able to escape the dark and seemingly endless recession.  Everyone in Namibia still dreams of finding oil off the coast and then, they argue,  we can live happily ever after just like the Nigerians  or the Angolans  or even as the Libyans maybe!  Oil has rarely not been a blessing in Africa or elsewhere and in Africa  it issadly  associated with blood,  war and corruption. Oil is nice because it is easy money and would certainly drag Namibia out of its current and right into a much bigger and longer lasting one. But water creates the basis of the new economy but we will have to work very hard to make the transformation a reality if we want to see Namibians running commercial farms that are profitable and thousands of rural Namibians working on a sustainable future for the country.

The beauty of Ohangwena II and the great research that has been done is that Namibia now knows the recharge rate of the aquifer is and it is around 635,000 cum per annum. However this is very low  In other words we can take out that much water every year and not deplete the aquifer ever. The added beauty of Ohangwena is that it recharges from Angola into Namibia because that is the natural slope of the acquifer and therefore it is Namibia that can  make greatest use of the new water bonanza. On the Angolan side  the aquifer contain another 30 billion cum of water. Namibia is now water rich but alas  it is ‘pipe poor’. Nature or God makes water, men make pipes and pumping stations.

Whet can be done with all that water is exactly the same other countries in Africa such as Sudan which grows fodder for export or we can emulate the Israeli agricultural success story  and turn the North of Namibia into the food basket of Africa  which will create thousands of jobs. Unlike the development of an oil industry using ground water to irrigate agriculture will not be easy and will take very deep pockets and some hard choices. Even if we just produce fodder for cattle, which would probably transform the cattle industry in the country as well provide us an invaluable source of export earnings. Fodder is essential for the developments of feed lots which would modernize and industrialize the country’s cattle industry.

In reality of course 635,000 cum is not that much water, a few days usage in Windhoek,  but there is no sound geological reason why the recharge to the aquifer is not much larger than this modest estimate. The recharge is low because the water in the aquifer is not used and the recharge would certainly be much higher if we started pumping water. The water would come from Angolan side of the aquifer because of the topology.  But there is an economic and scientific reason why Namibia should not be overly concerned about using water well above this modest recharge level. Water is a mineral and yet no-one has ever suggested that our other minerals like uranium or diamonds should be exploited in a sustainable manner. We will wait a very long time for nature to produce more diamonds.

The scientific reason why we should use this water from Ohangwena  II is that humankind is now on the cusp of developing adequate means of low cost water desalination using solar power and so we will soon be able to pump brackish and saline ground water, desalinate and use them for producing crops like sorghum. Namibia should not necessarily concern itself if several million cubic metres are used for the development of the country.  

Developing a large agricultural project based on this massive water resource will certainly be a challenge for Namibia but it will, after fish,  provide the country with the only sustainable export that will create employment. Mining of other minerals will see the shedding of thousands of jobs in the coming years as robotics and automation spread. An investor will require a very large tract of land to make this sort of investment and there will need to be a careful regulatory system put in place but most importantly is that any large scale agricultural project in the North must include and directly benefit local investors as well as the people of Ovamboland.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

America First and Africa Second...hand

America First and Africa second …hand

Africa has never been high on the US agenda of any president and even less for the current incumbent Donald Trump. African affairs are as low on his agenda as one can conceivably imagine. Not knowing the name of ‘Nambia’ in September 2017 as he called it twice at a meeting with AU members and referring to African states as ‘shithole countries’(which he denied) this year is a clear indication of the complete lack of knowledge or care for anything African by Trump.

 

But when we look at trade it is where we see how much will be changed by President Trump’s policy of ‘America first’. President Clinton spent years having the African Growth and Opportunity Act passed through the US Congress and will continue to 2025. This gave duty free market access to goods coming from African countries that the US liked. While it is largely meaningless for most African exporters of minerals and oil which face zero tariffs but it has been of great use to some countries have sought to develop industrial capacity for exports

Trump has used the Clinton AGOA legacy to show his ‘America first’ teeth with the smallest of African issues and countries. In 2015 the five leaders of the East African Community ( Rwanda Burundi Uganda Tanzania and Kenya )  agreed to phase out the imports  of  second hand clothing (called mitumba in Swahili) by 2019. Almost immediately the US exporters started to lobby the government that this was a trade barrier and they should therefore be excluded from exporting garments to the US. For Kenya this was going to hurt and four of the five EAC members caved in but Rwanda refused having no significant garment exports to the USA. In 2016 Rwanda raised import duties on second hand clothing from $0,20 per kg to $2,50 per kg before  eventually phasing it out.  Based on 2013 figures the US exported a mere US650 million of second hand clothes to the African continent but it was the largest supplier, more than EU as a whole. The average American disposes of some 35 kg of clothing per year and so it is either dump it in landfills or sell it to the poor.

In June this year the Trump administration struck back at Rwanda’s garment and textile exports by excluding them from the list of goods that benefits from AGOA access. Rwanda had imposed such high taxes on import of US second hand clothing which has become a source of  diversification of US trade with Africa. Immediately the government of Paul Kagame said it would pay the taxes of any Rwandan exporter who was hit by the US policy. The export of second hand clothing has developed into one of the most destructive acts of western ‘charity’ to Africa. The second hand US and European clothes commonly sold in African markets are so cheap that even the Chinese traders complain that they are unable to sell their relatively low cost new clothes competitively because of the second hand sales of the US and the EU. That is in part the issue. For African low income consumers the second hand clothes have been a genuine blessing providing cheap affordable and often high quality clothes. For African producers of textiles and clothing second hand clothes have been the death knell of what have often been decades, and in some countries like Ghana, centuries old textile industries.

It is argued that the fight over Rwanda’s second hand clothing market is a proxy war between the US and China. In the absence of massive tariffs or complete bans and given supplies of low cost clothing from China countries like landlocked Rwanda will not be able to produce textiles and clothing competitively because of its small domestic market and its distance and isolation from Mombassa harbor. Thus for the USA, the Rwandan tariffs and eventual ban  are merely a mechanism that substitute Chinese clothes for low cost US and EU second hand clothing.

The garment trade is small fry compared to the bigger and much more important part of second-hand Africa, the second hand motor vehicle trade. For the USA exporting second hand cars and clothes matters as it is a high return way of dealing with what would otherwise be considered waste. West African markets are also a place where criminals have frequently disposed of stolen US vehicles and hence part of the trade must be seen simply as a way of laundering the proceeds of crime. The biggest market for US second hand cars is right hand drive Nigeria and its neighboring entrepot, Benin which is by far the biggest market for second hand cars on the continent. These cars are then on-sold from Benin into the landlocked countries to the north.  In 2013 the USA exported some 860,000 second hand cars and the biggest market was right hand drive Nigeria and Benin. Increasingly African countries are putting ever greater restrictions on the importation of these vehicles. At present only 4 have an out-right ban on imports South Africa, Egypt, Morocco and Sudan but  more and more countries are imposing age restrictions. 25  African countries place a maximum age limit on imports, 10 countries ban imports over 5 and 6 countries ban imports over 10 years old. For the US the second hand car market matters and is worth $6 billion per annum in exports in  2013. Africa is by far the largest market for these American clunkers. Keeping Africa open for US second hand car exports matters to US exporters as it does to American car thieves.

But the most interesting question is not related to the second hand trade in clothes or cars. The most interesting question is how do we get from four only countries banning second hand cars and Paul Kagame being the only African leader who has the guts to stand up to the troglodyte in the White House to a situation the entire continent does likewise so that we have the economies of scale so Africa can develop a truly competitive pan-African automobile industry and competitive pan-African garment industries. Only when Africa has leaders of quality, foresight and the courage to stand up to the likes of Trump and put ‘Africa first’ will we ever graduate from the status of the world’s ‘hewers of wood and drawers of water’ who wear American hand-me-downs and drive American, European and Japanese clunkers. These leaders are very few in number and this is the real tragedy of second hand Africa.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

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