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.

Who is Responsible for Namibia’s Depression?

Who is Responsible for Namibia’s Depression/Recession

 

Three weeks ago the Prime Minister point blank blamed everyone but the government for the country’s mounting economic woes. For three years the country’s real GDP per capita, the standard measure of its income has been in decline. The government does not dare call it what it really is- a great economic depression. Normally these are defined as occurring when GDP/capita has been declining for 10 quarters though unlike a recession there is no agreed definition. With some fancy foot work GDP per capita in Namibian dollars has not declined every quarter and so we can avoid the dirty ‘D’ word and just call it a very long recession.

It was recently reported that the Prime Minister Saara Kuugongelwa-Amadhila told an Outapi Town Hall Meeting that two consecutive years of drought in 2016 and 2017 were to blame for the country’s financial downturn. It is also reported that on the Namibian Presidency Twitter handle, the prime minister said it is not true that the economic downturn was due to a mismanagement of the economy, but was a result of external factors reported to be blaming just about everything other than the poor economic management of the government.

The drought over the last two years may have knocked half a percentage point off Namibia’s growth rate but not much more. Agriculture is just too small for it to be the expalantion.  The government also blames declining commodity prices for Namibia’s economic decline. This is also correct. The collapse of uranium prices has meant that Namibia now has only two significant Chinese owned uranium mines which may  pay taxes as some point.  The decline of Angola caused by low oil prices has also made things worse as we no longer have Angolan officials coming to Namibia in their scores to spend and launder their money through the Namibian real estate market.

 In case you are thinking this an unpaid election advertisement for the government you would be wrong because the PM is about as right on external factors alone being responsible for our problems as I am when I blame my dear departed mother for my size. After World War II in eastern Europe an entire generation that had starved during the war, the Great Depression and the forced collectivization of land by Joseph Stalin in the Ukraine wanted to make sure that their children never knew a hungry day. And so on every occasion that I opened my mouth as a small boy my mother would put food in it. To this day I blame my mother for my size but the response to that lame explanation has to be, so what? Of course this is just an excuse, no better than the PM’s excuse for our declining GDP/capita.

The interesting question is what I can do about my weight and what Namibia can do about its current economic decline. I cannot change my mother and the PM cannot change commodity prices or make it rain. There are of course a host of reasons why we are in the dreadful position we are in and many come from weak economic behavior by the government. The most obvious explanation was the absurd proliferation of what passed for ‘infrastructure’ i.e. new government buildings such as NATIS, Home Affairs, a new super modern Police headquarters, and an ‘absolutely necessary’ new administration building at UNAM that was undertaken without any economic analysis of which of the competing projects would give Namibia the greatest economic benefit.

The second is a collection of state owned enterprises that habitually lose money and are sucking the government finances dry. The third is the decision of the previous administration to hire thousands of public servants straight from university that are of the most questionable productivity and that we can no longer afford. This is entirely in the purview of the government and of course before the November election the government will do nothing to address these issues.

The government has started to make painful decision such as those about Air Namibia. It must make decisions regarding private management of our hotel resources in the tourism sector. The government of Namibia owns the Country Club and gets a dividend cheque every year from the private South African managers but NWR just send the government bills. There are many more state owned enterprises that need professional management or closure. These inevitably involve job losses and the question is whether the government will accept this.

But the really tricky and probably the most important part of reform is stop ‘the economics of 10%’ in the building of absurd infrastructure in Namibia. We will probably never be able to stop some ministers and senior officials from taking kick-backs for construction projects in their sectors of responsibility but it is not impossible to make sure that some of the ridiculous projects that will only enrich some contractors, ministers and officials can be stopped. The normal procedure in most countries is for the Ministry of Planning to evaluate each proposed project through cost-benefit analysis and make recommendations on which give the best return. This is done in many countries but not in Namibia and even if it were done the Ministry of Planning simply cannot be trusted not to sway the results in favor of a particularly vocal or powerful minister.  

There is one institution that the US Congress has created in the 1970’s that is a must for Namibia if we are to save the country from the greed and villainy of some of our ministers and officials. We need to create the equivalent of the US Congressional Budget Office which independently of government reviews the cost and benefit of budget proposals. In the USA it is controlled by the Congress and reports to them directly. The most serious and present risk to Namibia is the proliferation of economically irrational loan funded infrastructure projects with no obvious economic base. A body that evaluates these projects and reports back to the national assembly will increase accountability and strengthen democracy in the country. To continue on the present road leads us to default and loans from the International Monetary Fund. Which road we take Madam Prime Minister is your choice and that of the rest of the government?

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

Namibia and the ‘perfect’ Mining Tax

Namibia and the ‘perfect’ Mining Tax

 

Margret Thatcher, the first female Prime Minister of UK, thought she had the perfect tax. It was administratively simple, low cost and had plenty of precedent.  She was always a woman enthralled by right wing economic ideologues and as she had succeeded in doing what the right wing thinkers had told her. She lowered company and personal taxes, she smashed the trade unions, closed the coal mines  and got re-elected after waging a war with Argentina over a spec of land in the South Atlantic - the Falkland Islands.

But then power and hubris got in the way of the ‘Iron lady’ as it does with many leaders everywhere and she introduced a Poll tax. This was so simple. Instead of having council taxes based on property that funded British councils the ‘Council fee’ as it was known was based on the same principle as the 17^th century Poll tax. Each individual, rich or poor would pay the same amount to council. It was used in the UK in the 17^th century and in Africa by the British colonialists in the 19^th and early 20^th century. It was called ‘hut tax’ in many colonies. This tax was strongly resisted in Africa and in Europe because it was so patently unfair. No matter how poor you were you paid the same as any rich person. The tax resulted in the worst riots in the modern history of the UK when some 200,000 people rioted in Trafalgar Square in March 1990. Within a few months Thatcher was forced to resign as PM and her replacement John Major repealed the hated Poll tax in his first speech in parliament.

History is littered with those who simply don’t understand that if you impose the wrong type of tax at the wrong time or too much tax you will be relegated to the dustbin of history very quickly. The American Revolution, after all, began as a tax revolt.

For years Namibia has been looking for the ‘perfect tax’, for mining companies operating in its jurisdiction. There is no perfect tax but a good tax must be one that collects revenue, is simple to administer but does not dissuade investors from coming to invest in Namibia. Importantly it must also be seen to be ‘fair’

 Most of the government’s revenues from mining comes from the diamond sector. Despite being a relatively high cost operation they are very profitable and Namibia receives the highest unit export price for its diamonds of any diamond producing country. In the non-diamond sector there is very little tax revenue because the government has granted tax free status to Skorpion Zinc (soon to close), Tsumeb copper and Trekopje Uranium (now under care and maintenance). It also has three new mines which have heavy capital costs to write down which they are allowed to do in their initial years.

What government really wants is a tax that, when prices of many of the country’s base metal exports improve, will give the country more revenue without increasing the tax rates. The tax on minerals is not widely understood. The tax is the price the owners of the mineral i.e. the people of Namibia get for giving away a mineral to a foreign investor. If it gets no tax revenue then the mineral is free, though its extraction is costly. To sell a non-renewable resource with no tax makes no sense.

As painful as it may be to delicate ears, most people are dreadful liars and if you look at the psychological studies that have been done on lying you will find that the majority people lie on a daily basis. Mining companies are run by people and yes some of them lie to the tax man. In the diamond trade, diamantaire never declare profits and so the governments of Israel, India and Belgium where diamond trading is significant don’t even ask these companies what profits they make. They simply send them a tax bill based on sales and if you don’t like it, shut down and go and trade somewhere else. For the Namibian mining industry this option is problematic because they may well go somewhere else.

As it is so easy to lie about profits how do we operate in a manner that makes sure that the people of Namibia get a fair return on their minerals. One way to do this is to have a progressive tax based on the gross revenues that the company earns - not profits. The mining companies think the perfect tax is no tax e.g. the Trekopje uranium mine and if you can’t get that then the second best is one based on profits where you can easily lie and cheat the tax authorities.  

How do we stop the mining companies from lying? The best way is to tax them based on sales because it is so much simpler to calculate than profits. You only have to know the world price of say copper or zinc and the volume and quality of what is exported and then you impose a tax based on a percentage of that revenue. As the volume and price can be easily known or set by reference to the world price, as Zambia does then the option to cheat is more limited.

But what needs to be done to stop the cycle of resource nationalism as it has been called along with the  recriminations from the mining company? The best way is to have a progressive tax that rises and falls with the price of the mineral. This would allow Namibia to automatically decrease the tax rate as prices fall and it would rise automatically with the world price. In Zambia they have tried to reform the mining tax system 9 times since the privatization of the copper mines by Chiluba and the World Bank in 1999. The continual change sin tax and mining rules  have only hurt Zambia but the current system is based on a percentage of sales which rises and falls with the price of copper.

The mining companies hate this idea officially because it raises costs and results in earlier mine closure. This is the good reason and it is correct, but the real reason it is hated is  because it is so much harder to cheat. In 2016 Zambia received 17% of its exports in government taxes and royalties. This compares to some 3% in Namibia.

There is no perfect tax, only reason and compromise and so the government must sit down with the Chamber of Mines and the mining companies and determine a simple straightforward system that assures Namibia gets its fair share when commodity prices rise again as they inevitably will, and which is understood and will not change with the whim of one or other politician, as has been the case in Zambia.

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

 

China and Namibian Uranium

                                                     China and Namibian Uranium 

Last month the Governor of Erongo Mr Cleophas Mutjavikua was quoted as saying that ‘Not only does Namibia have good nuclear resources and safety standards, but we need to turn this very important resource into energy for the Namibian people’. In other words he wants a nuclear power station in Namibia. To be polite, it is an idea that has almost no economic merit.

The first problem is that we could not use the yellow cake uranium that we currently export for generating electricity but would have to produce low-enriched uranium, U235 which is used in nuclear power stations. Making a profit now is almost inconceivable given the cost of building and operating an enrichment facility. After the nuclear accident at disaster at Fukushima in Japan in 2013 many countries moved away from nuclear power and there is now massive excessive capacity in enrichment facilities globally. As a result it is very improbable that a new Namibian facility could be commercially viable.

Once we have lost lots of money beneficiating Namibian uranium yellow cake into U235 then we would have to build a nuclear power plant. Since the Fukushima accident nuclear power has gone out of favor in most developed countries and so the engineering firms that build and export nuclear power plants to places like Namibia are very hungry and desperate for new business.  Germany has abandoned its nuclear power industry altogether. Only the Chinese and to a lesser extent the Indians are involved in a serious nuclear energy expansion program which involves the construction of many nuclear facilities.

If we did decide to build a nuclear power plant in Namibia we would suddenly find ourselves with many new ‘friends’. One need only ask former president Jacob Zuma how many ‘friends’ he managed to find once he decided to build a new nuclear power plant in South Africa. There are at least a dozen countries ranging from Canada to Russia to China who would be more than willing to build a nuclear power plant for Namibia and fulfil the governor’s dreams. And of course many of these nuclear power plant exporters, as the South Africans could attest, would come to Namibia bearing ‘gifts’…. very big gifts.

Furthermore if we started an enrichment facility, this would almost certainly send up red flags in developed country capitals and would get the very unwanted attention of the intelligence services in developed countries. This would be compounded by the fact that last month Rio Tinto sold majority 69% ownership in the Rossing uranium mine in Erongo to Chinese state-owned China National Uranium Corporation Limited (CNUC) for about N$1,5 billion. The other 31% is owned by the Iranian Foreign Investment Corporation, the Industrial Development Corporation of SA and the Government of Namibia. The fact of partial Iranian ownership of Rossing combined with any uranium enrichment program would just spell trouble for Namibia.

The purchase of the uranium deposits at Husab and sale of Rossing  to the Chinese is a real blessing for Namibia. Uranium has been decreasing in price since the Fukushima accident. In Namibia we have a tax free uranium mine at Trekopje owned by the French company Areva Resources Southern Africa, The mine ceased production in 2013 and has been under care and maintenance since. The only non-Chinese uranium mine in Erongo is Langer Heindrich mine which in 2018 produced a mere 394 tonnes of uranium in 2018 , down from over 2000 tonnes in 2013. The Chinese need uranium from a politically safe supplier and because of the country’s long and warm relationship with China, Namibia fits that bill perfectly. The reason why Chinese ownership is a blessing for Namibia is that ultimately the new owners of Rossing and Husab are not miners in the same way as Rio Tinto. For Rio Tinto they would only produce uranium if the price on world market covered costs. Since Fukushima this has been a challenge for everyone in the uranium industry. But the Chinese miners are directly linked to the electricity utilities in China and they will need the uranium for many years to come until China is willing to shift its energy mix away from nuclear in a profound way. They will buy come what may. The Chinese will continue to buy our uranium for many years to come and this is to Namibia’s benefit.

The real reason why the governor’s proposed  nuclear power station is just a non-starter is because of the economics of nuclear power. First, the cost of uranium is a tiny percentage of the total cost of nuclear power. Having uranium in the ground gives Namibia almost no commercial advantage in generating much needed nuclear power. Second since Fukiushima nuclear power has become more expensive over time because the public is demanding ever more security guarantees. Nampower is proceeding with a much better option for Namibia - wind and solar power which in terms of cost per unit are already on par with the lowest cost energy sources. While solar and wind are not available all the time the storage issue will be resolved in time. So the good governor of Erongo should stick to better energy resources his region has in abundance- wind and sun to generate electricity and let the Chinese buy our uranium.

Lastly, a word of caution is in order. In early 2017, before the coup in Zimbabwe, I attended a diamond conference in Antwerp and Mugabe’s last minister of Minerals addressed the audience and said that Zimbabweans were in five joint ventures with Chinese diamond companies but the Chinese appeared never to make a profit. The Chinese were obviously mining in Zimbabwe so as to improve their health. Moreover, the minister said that they always conducted board meetings of their companies in Mandarin and of course the Zimbabwean partners understood nothing of what was happening. As a result the tax authorities in Namibia must be very cautious to assure that the new owners of our uranium mines conduct their affairs in a manner that the owners of the uranium i.e. the people of Namibia get their fair share of economic benefits and do not give it freely to the Chinese or anyone else.

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

Is the African Development Bank Helping African Development?

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. These benevolent bureaucrats are  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

Recipes for failure - Tertiary Education in Namibia

Recipes for failure - Tertiary Education in Namibia

Last week the executive director of the Ministry of Higher Education, Dr Alfred van Kent told a SADC meeting of ministers responsible for education, training ,science and technology in Windhoek that ‘we spend 20-25% of  our national budget in education but the quality of the outcomes of education systems remain a challenge’. By implication I and several thousand other people  teaching at UNAM, NUST and IUM are producing the very graduates that are of such questionable quality. By virtue of his position Dr van Kent has every right to point the finger at those who are paid to educate

There is however an ancient truism that when you point a finger at someone else there are invariably three fingers pointed back at you. So Dr van  Kent let us look at the first finger.  Imagine that you are running a business and you are asked to define whether you are a ‘success’. The normal response would be that your success would depend upon whether you are making a profit. Only if you are a bad businessperson  would you define success as the number of goods you made. Earlier this year Mr Schlettwein brought down his budget and one of the documents that was presented to the national Assembly was the ‘Government’s Accountability Report 2017/18 . In the report on page 179 the Ministry of Higher Education under the definition of ‘success’ said ‘the progression and repetition rates determine the internal efficiency of an education system. In 2017, 83.5% of the students were either in their first year or had progressed to the next level while 16.5% were repeating a year. So Dr van Kent if I passed all of students irrespective of whether they studied or not I would be defined as a very efficient teacher? Perhaps the very reason that you complained to the SADC ministers is because of the very criteria that your ministry sets for success. This criteria for what your department calls ‘success’ is not, in my opinion,  success by any reasonable measure but the standard which creates the very outcomes of which you complained.  

Staff at the nation’s universities know perfectly well that if they fail large numbers of students that are not up to standard or because they do not work then they will be the ones blamed and not the students. At UNAM I am forced to give up to four exams for each course in the event that a student fails – normal, supplementary, winter/summer term, and promotional exam. That is directly a result of your ministry’s definition of success. As long as the criteria for evaluating the nation’s universities and its academics is the pass rate and not academic excellence and students being employable both domestically and internationally,  then we are wasting the nation’s money and the students’ time.

But that is only one finger, Dr van Kent. The second finger which explains why we spend N$3 billion per year on tertiary education and get what you know are poor outcomes is that despite having a National Human Resources Plan (2010 – 2025) which tells us precisely what type of students we need and was prepared by the National Planning Commission we make no reference to it in our planning. Few education planners even know it exists and even in 2010 the plan stated that we do not need most of the university graduates we are producing. We now have nurses and doctors demonstrating because there are no jobs available. The reason is simple enough- bad planning or a complete absence of it. By 2015 Mr Schlettwein had told the nation that he no longer has the resources to keep hiring staff for the public service. So if we are looking for a year, then 2015 is the end of Namibia’s post-colonial era when everyone graduating from our universities went straight to government. But at the heart of the problem is that if we have a student who has the grades to enter accounting or economics, irrespective of market demand we will allow them in rather than basing admission on what Namibia needs as per the nation’s HR plan. This is the greatest weakness of out tertiary education system as we simply continue to bring in more students even though we know there are no jobs.

The third finger Dr van Kent is the NSFAF. Roughly half of the students that come to university in Namibia are subsidized by the state. A student coming to UNAM gets N$23,000 in living allowance for the year. This is not a great deal of money but a student will very quickly figure out that after finishing high school you are confronted with two choices. You can be unemployed now which is a certainty for a very large proportion of Namibia’s high school graduates or take an NSFAF ‘loan’ and go to university. That means, given the current labour market that you are likely, but perhaps less likely, to be unemployed in four years’ time. Given that this is a ‘loan’ that many do not pay back then the choice is pretty obvious. As a result, a significant number of the students are not motivated to do anything but just pass their exams for four years with a minimum of work so they can continue to get government allowances.

But Dr van Kent, the thumb points aggressively downwards when you point at us. We have fallen for the ideas sold to us by IMF and World Bank that we just need more and better education and all will be well. Transform our mineral capital into human capital and the economy will prosper. The ‘elephant in the room’ is the fact that the supply of students does not create its own demand. In even large Africa countries like Nigeria and South Africa there are massively high unemployment rates even amongst technically trained graduates. Why? Because of Africa’s place in the global production system- we make little more than holes in the ground to extract natural resources and this activity is on the edge of full automation. No amount of tweaking the tertiary education system will change the outcomes until African countries start producing products for the local and export market. Until we generate dynamic local economies where investment is welcome then no changes in the education system will give our youth better outcomes. Namibia’s children will remain unemployed, even the very bright ones.

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