State Enterprises In Namibia, India and China - who pays the losses

Public Companies in Namibia India and China- who pays for the losses?

Namibia, India and China have one thing in common- all have had, at one point or another, a strong socialist ideology that has meant that government has created a very large number of state owned enterprises (SOEs). These were seen as vital building blocks necessary to help the country develop and transform that could not be provided by the private sector. In the case of Namibia there numbers have grown from a mere 11 enterprises in 1990 to well  nearly 98 today. The governments in all these countries have not hesitated to use state ownership and monopoly as a means of achieving its objectives.

In India there are some 244 SOEs. Few of these Indian SOEs are considered to be paragons of high productivity but the government of India has created numerous monopolies and provided considerable assistance to its publicly owned firms to keep them afloat. Some 80% of the total profit made by state-owned firms in India or 1.2trn rupees (N$300bn), comes from coal, petroleum products, power generation and oil where the government has granted considerable assistance or straight monopolies. In India SOEs made an average return has declined from over 17% of equity a decade ago and this has declined to  what is now slightly over 11% in 2016. 

 In China the SOEs are a complete contrast to the situation in Namibia and India and have been a vital engine of economic growth, government revenue and employment for the country. In 2015 the Chinese SOE sector contributed 15% of the central government’s revenue, something that would have Mr Schlettwein green with envy. Averages always tend to hide significant variation and this is certainly true in China where many of the SOEs are mere 'corporate zombies' - the walking dead . But the government of China is only willing to move slowly with consolidation into what is emerging, because of employment effects. The largest SOEs will become global economic giants that once privatized will be able to compete fully on  a global scale. In China it has been the massive profits of state monopolies such as exist in tobacco, railways oil, mining as well as the very significant returns from state owned banks that have generally provided the profits that have allowed the government to fund its operations as well as the many smaller companies that the government is unwilling to privatize.  

While the exact number of SOEs in Namibia is contested, with IMF claiming it is 33 but a complete list of the 98  Namibian SOEs on the Ministry of Public enterprises web site.  The most profitable ‘SOE’ is of course Namdeb which, the De Beers resident director Mr Daniel Kail recently claimed, contributed $3.7 billion in 2016 in taxes royalties and payments to the coffers of Namibia. But Namdeb is not really an SOE, because the government owns 50% rather than 51% of the equity in the company. That 1% is what really makes a difference because it means the government has the right to obtain dividends but not to manage the enterprise as it wishes. Because of the relationship, which comes very much from the relationship between De Beers and neighboring diamond rich Botswana, management must be by consensus and that consensus is that Namdeb must be run on a commercial basis.

But when you start to go down the list of public companies that are owned by the state there are very few where the contribution is positive. Some have made modest positive contributions like Nampower, Namport and Nampost. Others have become a financial albatross around the neck of the Ministry of Finance. Air Namibia, Road Contractors National Wildlife  and Namcor have placed a significant financial burden on the nation over the years. Air Namibia alone has needed some $4.7 billion of financial injections since 1997 and there appears to be no end in sight.

None of this is of course news and these habitual SOE losses are common throughout Africa and certainly not unique to Namibia. But these losses are only possible if you have an economic sector from which the surpluses are generated to make it possible to pay for the losses. In China and India these are the commanding heights of the economy and state monopolies which are themselves heavily supported by government. And in our case it is in effect Namdeb that pays for the losses of the rest of the parastatal sector of the economy. Without the diamonds it would be difficult for government to sustain the level of subsidies that are offered annually by the Minister of Finance to these companies. Put another way Namibia is paying for the losses of its public enterprises with something even more precious than the nation’s diamonds, it is the most valuable of things- time. It is time that we have little of, as the diamond deposits will eventually end, the time that we are prosperous and being able to make sensible decisions by ourselves. The day will come when the diamonds are gone and if we continue on the current path of unsustainable losses by SOEs the decisions will then not be made by Namibians but by those who will dominate policy making in the country and that will be the boys (and girls) from Washington, the International Monetary Fund.   

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

What went wrong with Botswana?

What went wrong with Botswana?

 I dedicate this to my brother in law Thabo from Fancistown and who is a graduate of a good commercial tertiary institution in Botswana but with the exception of a couple of internships and short term contracts has been unemployed for five years. He is a very bitter and angry young man whose story is so painfully common in Botswana. May God help Botswana!

If you look at the university enrolment figures for Batswana at universities it is the highest rate in Africa. On average only 8% of Africans of the relevant age group go to a tertiary institution. In the developed world this averages 30% and Botswana, which is the best performer in Africa the number  was around 28%. Those from the international community  are effusive about Botswana’s education success but that is only because they can never bother with details and prefer ‘the big picture’ from Europe and America. In fact the high rate of tertiary enrolment in Botswana  is the starkest testimony to the nation’s utter failure to diversify its economic base and create jobs for the young. This university enrolment figure is as high as it is in large measure because the government gives cash grants to students but there is no relief once they graduate. They have internships but no almost no prospects for getting full time employment  so many continue to study as the only economically rational alternative to returning to the village or starving in town.

But why are there no jobs in Botswana? It is after all the same international community that lauds Botswana for its absence of corruption, for its fine economic policies and its excellent macroeconomic management. But in 2017 with the closure of BCL the country is now more dependent in diamonds for its exports that at any time since the opening of the Orapa mine in the late 1960’s.So what has gone wrong with the country that had so much going for it.

In 1979 President Masire began the FAP ( Financial Assistance Policy) which provided subsidies to those starting businesses that would diversify the economy away from diamonds. He was keenly aware that diamonds are not forever and that without diversification the next generation would have no employment prospects. The program failed completely because of abuse of the subventions provided, outright corruption and because Botswana was a completely uncompetitive . The program was abandoned in 2000 and replaced by CEDA ( Citizen Entrepreneurial Development Agency)

This is where Botswana’s problems began. President Mogae made a fundamental policy mistake. He accepted the advice that  the sort of highly interventionist assistance provided by the FAP was flawed and should be replaced only with  a sop to Batswana entrepreneurs starting out in business ie. CEDA. For the last 17 years there has been nothing that resembles a real industrial policy in Botswana, only empty policy documents. This was in effect a complete abandonment of industrial policy and neither President Mogae nor subsequently President Khama have done anything vaguely looking like a comprehensive diversification policy.

Corruption- what corruption?

What should have been done in 2000 is straight forward enough. The failure of virtually every industry developed under the FAP was a result of the fact that there was no reason to be located  in Botswana and whatever could be made in Botswana and provide jobs could be done cheaper somewhere else. Thus there was no attempt to address this problem of the fundamental cost structure of Botswana and as a result the subsidies would have to continue indefinitely which every beneficiary understood was impossible. The Ethiopians, unlike Botswana,  have tried to directly address their cost stucture. They are providing cheap electricity, cheap water and cheap labour to industry so that the fundamental infrastructure and costs make Ethiopia the sort of place where investors will come without significant subsidies. Instead Botswana tried to solve its water issues with  the North-South water carrier and Moropule B. The former was developed using plastic Corning pipes against all the technical advice of all the engineers and was such a dramatic failure during the recent drought. This was because one very senior politician had shares in the company. Moropule B  construction contract was given to a Chinese company that had never before built such a large power station.  It too was a failure and now the government intends to privatise the project. So corruption  is not a problem in Botswana but if ever there were honest investigations of these two key infrastructure projects then the myth of an honest public service driven by the public good would be exposed. But in Botswana it would never happen because the heads that would have to  roll after such an investigation are very big indeed and they are just too big to fall.

In  2010 I convinced the Ministry of Finance to ask an unthinkable question- why is the cost structure of Botswana so high that people do not wish to invest? And after years of research and a major international comparative study of costs  we found  that the main reason was not transport or even infrastructure though they did matter. The biggest reason  for Botswana firms being uncompetitive was the high cost of  professionals and management in Botswana and not the cost of unskilled labourers whose wages were, on average actually lower than India. We recommended policies that would break the cosy cartels of lawyers, accountants, architects and  engineers and managers that made Botswana so internationally uncompetitive. You could not do this by just training more Batswana, you had to bring in foreigners who had their qualification recognized unconditionally upon arrival because they would gladly undercut their local competitors. But to Botswana’s contented elite bringing in thousands of Zimbabwean and Zambian professionals to compete with them and lower their salaries was simply unthinkable.

When such microeconomic reform is not politically possible then there is a standard but far more brutal macroeconomic tool  that will deal with the same issue of lack of competitiveness. That policy is one of continual currency devaluation until the local prices, including wages and salaries, adjust downwards to the point where the country is internationally competitive and investment begins. But there is no institution that more typifies the contented Botswana elite than the Bank of Botswana. Its main aim is the containment of inflation, and  that it continually argues is its main contribution to the nation’s development. During the last three years of Zuma-induced rand devaluation, the pula has appreciated against the rand and inflation lowered in the country. But it has made Botswana even more uncompetitive ( in dollar prices)  against any of its  neighbours.

Botswana will never be internationally competitive until its elite and its people are willing to pay the very high price for competitiveness. It is not free and the journey will be ugly with no guarantee of success. But the contented elite want nothing of this. They have created what economists call an efficient economy where the country’s diamond revenue is relatively well managed and distributed to them. However,  in terms of dynamics, ie transformation of the country, the economic policies of the last 17 years have been a complete and utter failure.

Lies we tell our children

For years good parents have told their children a story that belongs to another age. ‘Study hard at school,  go to university, get a degree, get a good job and you will live happily ever after!’’ It is a story that was perhaps true in another time but in the 21^st century in Africa  in the age of robots  and automation and Chinese  competition to African industry  it looks more like a fairy story. But this myth is also the basis of Botswana’s development policy as it is through large swathes of mineral rich Africa. Just educate the youth with the diamond revenue and the next generation will create the opportunities that will bring Botswana even greater prosperity. This is the same advice given to mineral rich countries  all over Africa. And when you have temerity to ask the smug representatives of the international community where those opportunities might be, given the pace of automation and the impact of China on costs, the answer is invariably the ‘The market will provide’.

 But the unemployed university  graduates do not believe this. Instead they believe the north and west African version of the 20^th century fairy tale  which goes ‘’go to university, get a degree and then get on a boat to Europe  where, if you survive the crossing , you will  have the privilege  of doing the same menial low paid jobs for white people that Africa’s  ancestors, who were forcibly shipped across the Atlantic, did two hundred years ago”.

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

The World Bank and the De Beers Cloak of Secrecy

The World Bank and the De Beers cloak of Secrecy

          In early May, the World Bank took a rare swipe at Botswana, its star pupil in Africa. Mr Nils Handler, a consultant for the World’s Bank complained in his report ‘Botswana Mining Investment and Governance Review’ that Botswana kept its mining contracts secret and that even the country’s Auditor General was unable to review them. One could just as easily replace the word Botswana with Namibia and say precisely the same thing.

         But whose fault is this? After all De Beers was, until the Oppenheimer family sold its 45% share to  Anglo-American in 2011, a supporter and founder member of the Extractive Industries Transparency Initiative (EITI) , an international organization which supports openness in mining contracts. Anglo-American remains a member of EITI but supports the De Beers impenetrable cloak of secrecy that completely envelopes the diamond trade. When questioned De Beers  points out that countries are the real driving force in the EITI and none of the diamond rich countries in southern Africa have joined what is widely seen in the region as an ‘arrogant post-colonial instrument of European domination’. 
         The World Bank is a strong supporter of transparency but in this case it is completely missing the point. Assume the unthinkable and  tomorrow Namibia and  Botswana decide to publish the contract it has with De Beers. This of course assumes that De Beers would agree to what they would surely see as a reckless act of commercial folly. The simple fact is that it would make little  difference at all to the diamond revenues in either country because just about every other aspect of the international trade in diamonds is cloaked in such commercial secrecy that knowledge of the terms of the contract  does not make it easier to understand the trade.
         The secret 2004 agreement between Botswana and De Beers which lasts 25 years, is said to give Botswana 81% of the Free cash flow ( cash flow minus CAPEX) from its mines. One can reasonably assume that Namibia would not settle for a worse deal and that its agreement is virtually identical but if I am wrong I am happy to be corrected. In any other mining industry such a split of revenues (81%/19%) would seem absolutely brilliant and would show how well Botswana  and presumably Namibia negotiated their contracts with De Beers. 
         In diamond trade the first question one has to ask is 81% of what? The answer is 81% of whatever De Beers says the diamonds are worth. But in the diamond industry what the price is and what the volume are less than transparent. The De Beers Price Book is a commercial  secret. In 2014 there was a massive scandal in the diamond industry in southern African when the De Beers Price Book was leaked and the company threatened to take legal action.  To anyone in the minerals sector the idea that the price of a product is secret seems like a medieval throw-back  but diamonds  may be mined but they are  certainly not a mineral. There are over 5,400 varieties and grade of diamond and the De Beers Price Book remains to this day  the central commercial artefact of this opaque industry.  The competitors with De Beers such as Al Rosa and BHP Billiton time their diamond sales around the De beers sales. De Beers, since 2002, is no longer a cartel but it remains what economists call a dominant oligopoly in the diamond industry and still effectively controls price. 

          But the cloak of secrecy is not just around a price, it is also about the size of reserves and the quantity that is and will be traded. De Beers power stems in part from its on-going relationship with the countries that supply it with diamonds and this in turn depends on just how many diamonds are in the ground. In 2015 when reports were released that diamond production would come to an end in Botswana in the 2020’s a new ‘resource assessment’ was suddenly released by the government that in fact diamond production diamond production in Botswana would continue until 2050.The report said that Botswana would produce another 600Mcts of diamonds over and above what was expected.  Of course because this so-called 'resource assessment' was not compliant with the standards of the Johannesburg stock exchange where Anglo is listed meant it had to be  released by Botswana government officials and not by De Beers or Anglo American.
        Yet there is an even stranger and more difficult question that would undermine any assessment of what Botswana or Namibia actually get of the fabulous wealth that lies in both countries. The articles of association of De Beers in Luxenbourg from 2002 state that ‘DEBSWANA will be a Business Partner of the (De Beers) Group for so long as the DEBSWANA Group sells its entire annual diamond production (excluding, for these purposes, Special Stones)’

This implies that there was another marketing channel for ‘Special stones’ which are  considered the most valuable of diamonds( defined currently as diamonds above 10.8 carats) and this raises a question of how these diamonds were marketed and who benefited from this trade? Was there a similar and separate marketing arrangement for Namibia’s extremely valuable diamonds?

         But even if all the questions about the real price and quantity of diamonds were answered would knowing the contract make the slightest difference? Not really. The accounts of Namdeb are at least public but the accounts of the much larger Debswana in Botswana remain secret even following the 2015 EU Transparency Directive which obliged all firms like Anglo listed on European exchanges to publish their accounts and revenues this did not occur for Debswana.   At that time Anglo disclosed the revenues and profits from Botswana but not much else. What the Anglo American report of 2016 did state was that of the 94 De Beers related companies that it had inherited some 30 odd, were located in tax havens or countries with secrecy provisions. 
           They are very nice people in Washington at the World Bank and their calls for transparency in contracts are admirable but in the Byzantine world of the diamond trade we stand far from  the light because for almost 150 years De Beers and it cloak  of secrecy have stood as barriers to the people of Africa knowing the real value of their diamond wealth and it is likely they will never know. Secrecy creates market power and hence profits and will not be abandoned easily.
These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed. 

Nampower Turkeys Vote for Early Christmas

                      Nampower Turkeys Vote for Early Christmas

Last week’s announced electricity price increase of 8%, which is above the current rate of inflation of 6.7%, is part of a long painful series of price increases that has been demanded by Nampower. Last year the approved increase was 16%. These huge price increases are driven by a number of factors including catch-up on past electricity prices. Nampower has a plan to increase the price of electricity to consumers at a rate of 15% per annum until 2020, that is assuming that the Electricity Control Bard (ECB), the government’s regulator, will allow them to do so. But even if this commercial folly is permitted by the regulator there have been some fundamental technological changes in electricity generation that set clear limits to the path of price escalation that Nampower is pursuing.

On the supply side the country remains dependent upon two source of power. One is form the Ruacana Hydro projection the Kunene which supplies some 345 MW of power, another 80 MW comes intermittently from the Van Eck coal fired plant in Windhoek. Both of these work intermittently depending on the rains in Angola and the supply of expensive trucked coal for Van Eck. This creates potential installed capacity of approximately 480 MW  in 2016. While peak demand in July 2016  was approximately 600 MW. The second source of power is based on imports mainly from South Africa which in a “normal” year supplies 60% of the country’s energy needs . While Namibia is committed to increase domestic capacity, the situation which existed from 2008 onwards when  Eskom did not have the capacity to supply South Africa’s demand, let alone the neighbouring markets of Namibia, Botswana and Zimbabwe has now completely changed.

 Demand for electricity in South Africa has started to fall while capacity has started to increase substantially. Eskom now proudly says that it has 4GW of excess power and this is only set to increase. By 2022 the two thermal  mega-plants at Kusile and Medupi are set to be operating at full capacity. South Africa’s capacity will then rise to 55GW, almost double current demand. The decline in demand in South Africa is a disaster for all concerned, as much as the load shedding was of several years ago. The excess demand is a sign of the weakness of the South African economy.

Electricity consumption is always a good indicator of just how  an economy is doing and the decline in demand is widely seen as a ‘Zuma’ effect and the lack of confidence in South Africa by the business community.

 As a result, Eskom is now hungry to sell its excess capacity to its neighbours and this will make developing local capacity all the more difficult as it will now be willing to make contracts that are cost reflective but coal fired plants are still amongst the cheapest. This will only encourage a return to the bad old days of  complete  dependence on South African supply and will  only breed future energy insecurity because when Zuma finally  leaves and simultaneously the economy begins to recover, South Africa’s appetite for electricity increases, we could see a repeat of the situation that existed over the period 2008-2015. This is a complete  reversal of the situation just two years ago where South Africa’s neighbours, including Botswana and  Namibia, were forced to buy electricity from Eskom at ‘spot’ prices, i.e. the highest prices which are linked to the cost of generating electricity using diesel generators. It was these exorbitant prices that were charged to Botswana and Namibia to keep the lights on that Namibians seem to be paying for now in higher prices agreed by the Electricity Control Board.

 But something almost unnoticed has also happened in Namibia. In 2015 the government agreed to the development of what is called a ‘’feed in tariff’’ to allow the development of solar PV and wind powered systems. License holders can charge 1.37 Nam$ per kWh generated from a 5 MWSolar PV plant. These were prices that were considerably above the price normally paid for electricity by Nampower from Eskom.   Four small 5 MW plants are already in existence in Omaruru, Otjiwarongo, Tsumeb and Grootfontein and a total of 70MW of similar types of plants are expected to go on grid by mid 2018. On top of this, the regional electricity distributors to which Nampower sells,  such as the City of Windhoek along with other towns  have agreed to pay a price for electricity generated into the local grid by private suppliers at what is called the ‘’avoidable cost’’ which is approximately $1.13 per kw hour. This will mean that when I set up a solar unit on my roof and I generate more electricity than I need at home my electricity meter will start going backwards and I will be credited $1.13 for every kwh that I generate at home.

 What is happening to electricity generation  globally as well as in sun-blessed Namibia is nothing short of  a brave revolution where solar power will  do to Nampower what the cell phone did to landlines and to Telecom Namibia. I will soon be both a producer and a consumer of electricity. The only real question is does this make any commercial sense for me personally? Installing a solar system including the most important component, which is a solar hot water system, will pay me back in 5-7 years. By that time I will have paid back the $80,000 or so investment and stopped paying the City of Windhoek anything significant and they will start paying  me.

While  the capital cost of installing a solar system at home is still fairly high it is now appearing like it is viable here. You can get a tailored loan from banks like FNB to install home solar systems. What is certainly the case is that the price of installing solar costs is continuing to fall and it will, in a few years, become normal for people in Namibia to generate their own power at home.

 

Namibia, has committed  at global  climate change conferences to have 70% renewable power by 2030. Given the relatively  high price that was agreed initially to be paid for solar, N$1.37per kWh for a 5MW facility,  as solar  expands Nampower will no doubt be coming back to the ECB asking for ever greater electricity prices which will only accelerate the switch from them to home generated power. Nampower’s pricing policy of asking for 15% per annum is like the proverbial turkey voting for an early Christmas.  

 There is a more important development issue as Namibia plans to be not only environmentally sustainable but also to industrialize. If one looks at the history of resource rich countries that have actually transformed their economies, whether it is Malaysia or South Africa they have done it with cheap electricity. There is nothing cheap about the green road Namibia is now travelling and it will only serve to make manufacturing in Namibia even more expensive. Namibia cannot industrialize with expensive electricity and certainly it will not be able to beneficiate base metals which are particularly energy intensive. The best way around this is a clear two tiered pricing system based upon high prices for consumers and much lower prices for industry based on the cost of generating hydro power from Ruacana. Hydro remains the cheapest way to generate electricity and a price of electricity based on this will help give industry some relief from the high cost of environmental sustainability to which the government is committed.

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

Lies we telll our children!

Lies we tell our children!

For years good parents have told their children a story that belongs to another century. ‘Study hard at school, we tell them, go to university, get a degree, get a good job and you will live happily ever after!’’ It is a story that was true in another time but less and less in the 21^st century and  certainly not now in Africa. The facts are well known to many graduates. Young people have believed the stories that their parents told them and done as they were told. But legions of them have come out of Africa’s universities and found nothing but unemployment facing  them in future.

The Supply Side- Blaming the Victim

The question is what is the cause of this situation and what should be done to give young Africans a brighter future than what currently awaits them?  There are two explanations that are offered. The first is supply driven and that is that we have simply created too many universities which have created an enormous supply of young graduates many of whom lack even the most basic of skills that are of use to either government or the private sector. Between 1990 and 2007 the number of universities in sub-Saharan Africa has grown from 24 to 460. Most of these universities are private and many are of the most questionable standard. At present the estimates are that there are over 680 universities in sub-Saharan Africa. All of sub-Saharan  African has a tertiary enrolment rate of only 8% of the relevant population which is much lower than the rest of the world. If Africa met the world average of around 30% we would have twice as many unemployed graduates.

It is easy enough to paint a picture of many African university graduates who have weak mathematical skills and who are incapable of writing a complete and coherent paper. While there can be no doubt that in some cases this is true in many cases this amounts to blaming the victim. It is precisely this problem that so many observers try to depict as the fundamental cause of unemployment throughout Africa. The argument goes that if we could just produce better graduates then all will be good and the good ones who will go to the ‘Centres of Excellence’ that the World Bank hopes to create in West Africa will all find jobs. In other words  the unemployment is a supply side problem. Just produce a better graduate and the demand will be there.

But will it? There is no doubt that the involuntary unemployment amongst graduates from the elite institutions in the developed and the developing world is almost zero. But what of the rest of the graduates? No-one has a comfortable answer to this question. The rest are just getting an education and only those who will come from elite institutions will find jobs.

Demand Side Problems -Its the Model!

 Why are there so few jobs created in Africa, whether they are for graduates or otherwise?  

The free market, liberal economic model we are in creates few private sector jobs in anything other than the world’s low cost centres, mostly in Asia. Manufacturing in Africa is virtually non-existent, extinguished in the 1980’s and 1990’s under World Bank policies and the effects of trade liberalization in the 1990s. We make nothing except holes in ground and a narrow but traditional  range of raw agricultural products. We export minerals using capital intensive techniques that create few jobs and import manufactured good from Asia. In mining technological change from underground to open pit mining has decreased employment levels enormously.  The globalized free market economic model emphasizes efficiency and Asia, in particular India and China, are simply more cost efficient than almost all Africa countries.

 Donald Trump is the American worker’s response to this economic model which has taken their highly paid jobs and moved them to lower cost China and Mexico where dynamic growing economies have emerged as a result. In return Americans, like Africans, get cheap consumer goods which they can afford to buy if they still have jobs. This model is efficient but hopelessly unsustainable and it is at the heart of why the world is becoming more politically unstable. No amount of blaming African graduates or building elite institutions will solve the demand side problem because it is a product of the global economic model we live in.

 There is an ’alternative Nkrumahist fact’ that is particularly relevant in explaining Africa’s predicament. Between the Congo River and the Cape are 250 million hard working, industrious and very entrepreneurial people who have good land, water and every conceivable minerals that should make them as rich as any developed country and yet, by and large, these African citizens of the SADC region live in poverty. It is only because Africans live in tiny countries, defined by white colonialists 150 years ago, and are ruled by what are too often malicious and corrupt elites that no  solution to Africa’s situation is found.

 Only a change of Africa’s economic model to one, paraphrasing  Donald Trump’s words, where ’Africans puts Africa first’ and seek to develop a large competitive African market, focus ruthlessly on  developing competitiveness and our manufacturing capacity will the myths of the last century have any meaning to our unemployed children. Until that time comes, the North and West African version of the 20^th century story  will remain the most relevant to our children  ‘’go to university, get a degree and then  when you find yourself unemployed, get on a boat to Europe  where, if you survive the crossing,  you can work illegally,  doing the same menial jobs for white people that the ancestors did when they were forcibly taken across the Atlantic 200 years ago”.  

​

Why Rio Tinto Must Go !

Why Rio Tinto must go!

It should be noted that in 2018 it was announced that the Rossing mine  will be sold to Chinese interests. 


Subsequent to the submission of this article to Rio Tinto and the Namibian newspaper  here in Namibia, Rio Tinto published its  annual returns which show that the company made a not insignificant profit in 2016 after two years of losses. The turnaround in Rio Tinto changes little in this argument as  both spot and contract prices of yellow cake are in decline.

As you stand at the edge of the tailing dam at Rossing uranium mine in Erongo, above the processing facility which  makes the yellow cake which is sold by Rio Tinto, the future of uranium becomes clear. When you peer into the distance you can see the giant Husab uranium mine which  the Chinese owners say will eventually be the world’s second largest uranium mine after the Mc Arthur river mine in Canada.

It is only when you look at the accounts of Rio Tinto that you begin to realize just how hard the times have been. In 2015 the Rossing  mine lost N$351 up from a loss of a mere N$91 million the previous year. When you start to look at the production. In 2015 Rossing produced 1,245 tonnesof uranium oxide (yellow cake). This is less than half the production coming out of the mine in 2012 when Rossing produced well over 2,600 tonnes of yellow cake. But that was ‘then’ ie  before the effects of the Fukushima ‘incident,  as Rio euphemistically calls the worst  nuclear disaster since Chernobyl, and what will almost certainly be a defining moment in the history of the nuclear and uranium industry.

Fukushima Daichi disaster has redefined the entire prospects of the nuclear industry and by extension uranium mining with much of the developed world  now highly skeptical about the future safety of the technology. It has a resulted in a sea change in thinking in the developed world. The argument in the public mind is simple enough- ‘if even the very technologically advanced Japanese could not control this technology then nuclear power must be inherently dangerous.’ It was this that lead to a mass desertion of nuclear power. First by Germany, under pressure from Angela’ Merkel’s Green Party coalition partners but then by other countries  such as Switzerland and Italy.

The nuclear industry and the uranium which feeds it have gone into secular decline in Europe and the US since Fukushima. But it was not just the Fukushima and the growing public perception of risk that is the only cause for the woes of the nuclear industry. Just twenty years ago nuclear power was amongst the cheapest ways to generate what engineers call ‘base load’ ie electricity that be cranked up and  decreased at will. Other sources such as geothermal power were always cheaper but less significant. But things have changed and a modern nuclear plant is now simply no longer a cheap option with the ever increasing costs of capital and de-commissioning costs after they have reached the end of their economic lives (usually about 40-60 years) has meant that the cost of electricity generated by nuclear power has increased drastically.

In its most recent annual 2016 ranking of which source of power is cheapest in the US,  the  authoritative US Energy Information Service findings are that nuclear power is horrendously expensive when compared to say gas powered plants.  This decrease in the cost of gas is because of the new and highly controversial fracking technology used in gas extractionthat  has lowered US prices substantially.  Generating electricity from nuclear power now costs are almost double that of gas.

The Rossing mine is simply experiencing the long term effect of what is certainly a dying industry. Rio sells most of its uranium from Rossing to the US and the EU and only a small portion to Asia.  In other words, Rio is selling uranium, a dying product into a dying market. Yet the Chinese market is different. China is bucking the global trend and is rapidly expanding its nuclear capacity and that is why the Husab mine is opening when others  appear to be on their last legs. The Chinese government has a problem; its citizens would like to breathe fresh air and not what passes for it in many of their hideously polluted cities. It now needs an energy source that does not create the level and type of  air pollution that its coal fired power plants have until now. As result China is  massively expanding the number of nuclear power plants to supply these needs. It is expected that China will more than double its nuclear capacity by 2020.

The Chinese owners of Husab mine are, unlike Rio Tinto,  not miners, they are owned by Taurus Minerals Limited of Hong Kong. Taurus is in turn a subsidiary of the China General Nuclear Power Company (CGNPC), Uranium Resources Co. Ltd. and the China-Africa Development Fund.ie the Chinese state power company. The difference between Rossing and Husab is the business model of their owners. The Chinese business model is vertically integrated and ultimately wants the uranium to assure security of supply for its expanding power industry. While the cost of uranium is a tiny portion of the total cost  of the electricity it generates  its regular supply is fundamentally important because you cannot just turn off a nuclear reactor for a week if you have no enriched uranium supply.  For Rio Tinto uranium is the only source of revenue from Rossing. On the other hand  uranium is a mere 10% of total cost of nuclear power for the Chinese. But it is an indispensable part of the electricity generating process and hence China must have  a reliable source of supply from a politically close source. Because the Chinese are in the electricity business the low price of uranium is a minor issue, for Rio it is a matter of life and death for its Rossing operations.

Rio Tinto is in the wrong business and must ultimately sell Rossing. Eventually, when it is even in a worse financial position than now  a willing buyer will scoop up the Rossing Mine at a low price and he will  very likely be Chinese. Namibia, Rossing and its employees will be better off when someone who owns the mine is in another business.

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

Namibia's Swiss Connection

Namibia’s Swiss Connection

International trade makes for some very odd and unexpected relationships. If you are very boring and spend time reading the country’s trade statistics you will find out some very strange things about Namibia. Our biggest trading partners are pretty much as one would expect. Most imports come from South Africa, with China a distant second place.  But even those figures probably miscalculate the size of South Africa’s exports because many goods coming into Namibia from RSA are of mixed origin. Our exports, on the other hand,  go first to Botswana which buys our diamonds but only because it has an agreement with De Beers (and hence we end up subsidizing Botswana through SACU) and second most import destination for our exports is South Africa. 

But it is some of our smaller trading partners that are not all they seem. The most recent Trade Report from  the NSA for 2015 says that the third biggest destination for our exports is Switzerland and our fifth biggest  source of imports is the Bahamas. Normally in international trade you trade with large and close countries and neither seem at all obvious candidates as significant trading partners for a country far removed from them as Namibia. They are even more improbable when you see what is supposed to be traded. The moment one see names like Switzerland and Bahamas as a major trading partner for a small distant country like Namibia one should become instantly suspicious.

These two countries along with other ‘respectable  tax havens’ like Luxembourg have probably done more  to facilitate the pillage and plunder of Africa than any non-colonial powers. Their secrecy laws and their tax provisions effectively shield companies and people from prosecution for economic crimes committed in developing countries with weak tax administrations. Whereas crime might not pay, helping criminals hide their loot certainly does. These countries have profited handsomely from the assistance to the plunder of their European neighbors as well as developing world as these are amongst the richest nations on earth.  Luxembourg, with no significant resources or industry,  is the second richest country on earth with a GDP/capita  in 2016 of US$ 94,000 based on what economists call ‘purchasing power parity’. ‘Poor’ Switzerland is ranked 10^th with a GDP/capita of US$57,000. The Bahamas, a tiny country that makes almost nothing, has a GDP/ capita of $21,000  ( Namibia was a mere US$8,000 in 2015).

Our trade statistics say that in 2016 we exported some N$ 13 billion (approximately US$1 billion) to Switzerland. While there were other exports such as diamonds, copper in various states,  made up some N$12 billion of our exports.  But when we go to the mirror data, i.e. what Switzerland says it imported from Namibia they say they only imported only US$1.2 million (N$ 17 million) from Namibia and there was no copper. Discrepancies in trade statistics are expected but this is not a minor discrepancy. What the Swiss say is that most of those imports are diamonds and some edible fruits. So if we exported N13 billion to Switzerland and the Swiss say they imported no copper who is not telling the truth? And if someone in Namibia is not being entirely honest in their import and export documentation then perhaps they should be asked to explain why.

But if that sounds curious then the import figures from Switzerland are even stranger. The Namibian trade statistics say that the country imported some N$ 743 million (US$50 million) from Switzerland. What our trade statistics say is that over half this figure in the form of copper ore and concentrate. This is very strange indeed not only because the Swiss figure say they exported no such thing to Namibia, they could not because there are, according to the most recent US Geological Survey report, there are no copper mines in Switzerland.

If you look at the Bahamas the figures become even stranger, if that is at all possible. Bahamas is Namibia’s 5^th largest source of imports and in 2016 it was reported to the NSA that we imported N$2.4 billion of goods from the Bahamas which is surprising given that Bahamas trade figures say they exported nothing to Namibia, not now, and  not in the last  three  years. So what was traded?  According to Namibian data almost all of these imports were vessels which could be vessels used by De Beers in Debmarine or fishing vessels. It is simply not known. Bahamas is what is called a ‘Flag of Convenience’ country like Panama or Liberia and there are numerous reasons, some worse than others, to register vessels in Bahamas. Many have to do with risk, insurance and taxes and fees. But many a sailor’s widow would regret the day that her deceased husband stepped foot on rust bucket registered in a Flag of convenience country,  some of which have only the most minimal of safety standards.

All of this may be perfectly normal as traders may be using Switzerland and Bahamas to defraud the tax offices of countries, other than Namibia and  that is none of our business. This may be the case with our tax free factories. But Mr Obed Kandjoze and Mr Immanuel Ngatjizeko  the ministers responsible for minerals and trade might want to help me, my students at UNAM and the public at large understand where exactly we are actually exporting our minerals to and where they are coming from. Right now it is a complete mystery. If we do not even know where our mineral exports are actually going and imports coming from and at what price it  would be difficult to be sure that we are getting the right amount of tax revenues from those in these businesses.

These are views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed. This article was sent to officials in the Ministry of Minerals and the Ministry of Trade in Windhoek  for comment. Unsurprisingly, no comment was offered. This was also sent to Dundee Precious Metals, the main trader in copper in Namibia as well as to UNCTAD and AfDB and no reply was received. This apparent trade in copper is also happening in Zambia.