The Making of the African Mole

The making of the African mole

Namibia, having been a colonial appendage of South Africa meant that Namibians took for granted that we, like our masters in Pretoria, dug holes in the ground to make a living. And a pretty living it was if you were white and part of the mining establishment. Even for Africans who came to work in its gold mines life as an underground miner was relatively comfortable in comparison to the alternatives at home. At its peak in 1986 the SA gold mines employed some 540,000 underground workers from all over southern Africa. Thirty years later in 2016 it was 112,000 workers. However, outside South Africa there is nothing about mining as the dominant part of the economy that was ever a forgone conclusion. 

In a few small corners like the Copper Belt in Zambia, the gold fields of Ghana and in Katanga province in the DRC, mining was part of the national heritage. Outside these places mining and hydrocarbons were historically a minor activity. During Nigeria’s first republic until 1963 the only significant oil that was exported was palm and ground nut oil. Now it imports palm oil and exports hydrocarbons and almost nothing else.

Africa has changed greatly. Tanzania exported sisal in the 1970’s, Mozambique groundnuts, Ghana cocoa and Uganda coffee. This is what Africa was in the immediate post-colonial era. After 40 years virtually all of Africa now digs holes in the ground and exports unprocessed minerals to help develop China. now as we did for Europe in the previous century Agriculture once the backbone of the colonial and immediate post-colonial economies shrank away. This was not an accident nor a result simply of great discoveries by geologists. What few understand is that this was the result of conscious policy designed by the World Bank and IMF in the 1990’s. In 1992 the World Bank published a report entitled ‘A Strategy for African Mining’, and it changed Africa forever.  Virtually all African economic policy was at the time written in Washington as almost all African countries were so highly indebted and had accepted the free market policy advice of the IMF and the World Bank

The World Bank did two things that complemented Africa’s tilt towards mining. First it devastated the agriculture sector by eliminating the often very corrupt national agricultural marketing boards. The assumption was that the private sector would step in and replace these agencies that were stealing so shamelessly from the rural poor. Of course the private sector only stepped in where it could make money and all the advice just fell away.  Secondly it got rid of much of Africa’s inefficient manufacturing sector by lowering tariffs and over a period of 20 years manufacturing virtually disappeared as China came to dominate the global manufacturing sector. Manufacturing value added as a percentage of GDP decreased around Africa as more and more of everything we wore and used was and is made in China.

The Bank’s 1992 report and the largely free market Structural Adjustment Programs (SAPs- now politely called Staff Monitoring Programmes) implemented all over the continent immediately after did two things. The Bank  privatized the state owned mining companies as in Zambia, Tanzania and Ghana and provided the private mining firms with such generous tax regimes that the government got very little of the earnings made by the large transnationals. It was precisely this incentive that changed Africa. Secondly, they legalized or more correctly decriminalized small scale mining so as to allow all  those thousands of workers made redundant in their SAPs to have a viable, if completely miserable, existence as economic moles working underground.

The Bank was successful beyond its wildest dreams. Growth rates soared. The World Bank saw some 35 countries legalize small scale mining in Africa in the 1990’s. The Intergovernmental Forum on Mining estimates that there are some 10 million African moles working underground in small scale mines. Most of these, an estimated 8 million work extracting gold and the rest are in diamonds, and rare earth minerals. In the gold mining sector their activities are poisoning thousands of Africans with mercury and lead and a host of other dangerous minerals used - or are by product - in gold mining. The artisanal and small scale gold mining sector is driven by a combination of high gold prices, poverty and lack of opportunity. Africans have  not become moles voluntarily. In the past countries like Ghana had banned small scale mining because of the mercury risks to the population and its desire to see large scale mining which pays at least some tax.

The biggest change though was in the large scale sector where the great transnationals poured into Africa under the influence of the World Bank tax incentives and the end of Africa’s long post-independence and apartheid fueled wars. They found minerals in many places that were previously considered too risky such as Mozambique, Mali and Tanzania. Great fortunes were made but not by the African governments as so much of the benefits were distributed to the companies under the Bank’s tax arrangements. What is now called ‘resource nationalism’ by the free marketers is often just an attempt by African countries to get a fair share of their resources, though some of the means may be debated.

Africa became in the last decade a major mining province. But this was not because the Bank was so clever but because of China’s growth pushed the price of minerals through the roof. The Bank’s ‘success’ in converting Africa into a mining province and accelerating growth was simply good fortune. Now the World Gold Council estimates that in 2018 Africa is the world’s largest source of gold in the producing 820 tonnes. Much of the gold was small scale and this gold, unlike the large transnationals brings no tax revenue at all to the host country. The gold is smuggled to Dubai and these small scale miners pay no taxes whatsoever for the gold they take out of the ground.

In Ghana which has now overtaken South Africa as the continent’s biggest gold producer the small scale mines are increasingly mined by thousands of Chinese workers who are there illegally and have been so for a decade or more because the Ghanaian government is too corrupt to get rid of them . 

Now even Uganda exports gold (which it does not produce), Tanzania sells gold and hydrocarbons and Mozambique exports gas and coal while Ghana’s biggest exports are oil and gold. Today Africa is richer as a result of the Bank’s policies but whether any of these changes are sustainable is another matter.

These are the views of Professor Roman Grynberg and Mr. Fwasa Singogo and not those of UNAM.

Beware the Nollar !

Beware the Nollar!

 THIS WEEK, the rating agency Fitch downgraded Namibia’s status to BB, from BB+ plus. Being downgraded is a regular occurrence over the last three years when we have been in our current depression.
We pay the ratings agencies to tell us the truth about our economy in a way that the good people at the Bank of Namibia or the Ministry of Finance, who we also pay, will never do. It is perhaps understandable, because those who tell their employers the harsh truth don’t stay long because the ‘emperor’ never wants to be told that his fly is undone.
The problem is that Fitch said a couple of things that were surprising. The first is that government does not intend to refinance the US$500???? million Eurobond loan in 2012 and that the peg against the rand will remain for the ‘forseeable future’. I have little faith in economic forecasters, they get it wrong more often than not and I have less faith in their ability to write concise English. What does ‘foreseeable future’ really mean?

I have long argued that if Namibia ever wishes to be internationally competitive what it needs to do is to decouple our currency from the South African Rand and have a currency of its own… the nollar. International economists argue that if Namibia really wishes to be internationally competitive then it would have set the value of the nollar at 0.80 cents to the Rand. That might make us competitive against the South Africans, if nothing else happened, but would do almost nothing to make us internationally competitive against Vietnam or China with whom we must also compete. That would require a nollar worth about 50 rand cents. If you are not up to date with how currency changes affect you that would mean the government would have to cut living standards by at least 50% in order for us to compete against the most competitive Asian producers. You can well understand that as much as any politician wants Namibia to be competitive with Asia none are willing, before 27th November or probably even after, to say that they want to lower your standard of living by that much in order to be competitive.

Now, if the nollar sounds too painfully close to the recently reintroduced Zimbabwean dollar or zollar, as it is called, then you are right. The zollar has slumped mercilessly in Zimbabwe from an exchange rate on introduction earlier in June this year when at 2.5 to the US dollar. The exchange rate stood at 15 to the dollar just last week.
For 10 years after the last fiasco with the Zim dollar ended in 2009 when trillions of the local currency were being sold for a US dollar, the government reverted to the US dollar as the medium of exchange. But it is now trying the same currency experiment again, which sounds to many like the Einstein’s definition of madness … doing the same thing again and again and expecting a different outcome. Zimbabwe now has what is estimated as the world’s highest rate of inflation at 900% and makes Venezuela’s Nicholas Maduro look like the vision of monetary prudence.

But is what Zimbabwe doing simply financial madness? For the average Zimbabwean the answer is an unequivocal yes, but if you have access to both the official and unofficial (black) market for US dollars it is quite another matter. The last time around when Zimbabwe had its own currency in 2009 some well connected people made vast fortuntes from the hyper-inflation that occurred in Zimbabwe.
If you could get access to US dollars at the official rate and then sell on the black market you could make serious money. But that was not for the average Zimbabwean, who is not a high cadre of Zanu-PF or otherwise connected to the political elite. The situation is so bad that Zimbabweans are now going hungry yet again and can no longer afford the one way ticket to neighboring countries and a lifetime of evading officials and bribing the immigration police.

So what awaits Namibia if we eventually decouple from the rand as is widely expected? The only real question is when. Many believe we are OK until 2021 but others in the financial community think decoupling may come sooner.
What is commonly said in financial circles is that senior finance officials would like to see a new peg of nollar at rand 0.80 cents. That peg would last as long as an ice cream in Windhoek in February. The reason is that a decoupling from the Rand is not motivated by any desire to be competitive but a desire to end the austerity, i.e. "fiscal consolidation" by being able to print nollars.
You can print nollars but we can’t legally print rand and unless you decouple you lose control of monetary policy and the ability to behave like Mugabe did in 2009 and Mnangagwa is behaving now in Zimbabwe.

Assuming that the reporting of the finance minister’s statement in New York in Bloomberg late last year is correct, he would eventually like to see an end to the austerity by decoupling the nollar from the rand . President Hage Geingob in April said no way at the G77 meeting but in the end what and when it happens depends on how much foreign exchange we have.
At the end of July this year we had US$2.5 billion in reserves. However when we repay the Eurobond in 2021 our forex reserves will fall dramatically and Fitch tells us that we can expect another two years of declining GDP until 2021.

If we were to behave like Botswana did when it decoupled the Pula from the rand in 1976 and kept a solid peg against a basket of currencies then the policy might help correct our problem of international competitiveness. But devaluing the currency often fails to increase competitiveness because it is seen as a signal to the market that the country is in trouble and not really trying to correct its competitiveness but solve its fiscal and balance of payments problems.
Under the kleptocratic misrule of South African President Zuma and his cronies the rand fell in half (from 7 to 15 rand to the US dollar) and in theory it should have made SA a great place to invest as labour and other local costs were cheap in US dollars.

The problem is that just the depreciation of the rand under Zuma was a market signal that much was amiss in the country and rather than invest more foreigners lost faith in SA in the same way as depreciation of the Zimbabwe dollar will do nothing to enhance investor confidence in that country. Unless decoupling is done when the economy improves and is more solid, beware the nollar!

•These are the views of professor Roman Grynberg and not necessarily those of Unam where he is employed.