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.