A hand up, not a hand-out, part 2

In Africa, the battle against AIDS and other endemic diseases, such as malaria and tuberculosis, is more important than ever. Fighting these diseases places an unbearable strain on the health, education and welfare provision of even the most sophisticated countries in the continent.

One in four people in the Africa’s economically active population is infected with HIV. Sub-Saharan Africa is home to more than two-thirds of the 70 million people living with the disease in the world today. Donor agencies, governments, and the private sector all have a vital role to play in reversing this trend.

De Beers, together with its joint-venture partner, Debswana, was the first mining company to make anti-retroviral drugs available free to its employees (and to their spouses or partners) for their lifetimes. As further demonstration of its commitment, De Beers has reached an agreement with the Bloomberg School of Public Health at Johns Hopkins University in the U.S. to fund two graduate students from Africa each year to study for a master’s degree in public health at the school. The students will thus have the opportunity to attend one of the world’s most famous public health institutes before, armed with new insight and expertise, they return to Africa to work in the fight against AIDS.

The role of the private sector in all of this is crucial. It is no accident that those countries whose economies have grown the fastest in recent years, such as Mozambique and Botswana, owe their growth not to aid but to business. Clearly, trade, rather than aid, is the route out of poverty. However, we know it is more politically expedient to pour aid into Africa than for Europe and America to cut farm subsidies, which enable their own farmers to dump their produce in Africa and impoverish African producers. As long as those subsidies and tariffs remain in place, the campaign to lift Africa out of poverty will remain mired in hypocrisy.

We applaud the fact that under Washington’s African Growth and Opportunity Act, African exports to the U.S., excluding oil, rose by 22 per cent last year. We’re also pleased that the British government has vowed to take up the trade issue with its European partners. but is it really willing to sacrifice other European agreements in the African cause?

If Europe is reluctant to sacrifice its subsidies and tariff barriers, why not use part of the aid budget to subsidize, in Europe, its tariffs on African products? I admit this is not an ideal solution, but it would at least level the playing field in a world where trade is still far from free. And it would have the advantage of assisting and encouraging African producers in the most direct way possible. Abandoning tariffs on African exports should also, indeed must, have the benign effect of encouraging African countries to abandon their own barriers to intra-African trade.

Another barrier to the development of a viable private sec- tor in many Afri- can countries is the absence of private-property rights. In his book The Mystery of Capital, Hernando De Soto points out that poverty in the developing world is due to a lack of access to usable capital, and that the best way to secure that access is to reform local systems of land ownership and grant property rights and legal freehold title to land that can then be used, traded, or used to secure collateral.

In all these grand plans to end African poverty, there is, however, one thing that is overlooked, and that is the abundance of natural resources with which providence has endowed Africa. It is indeed a paradox that the world’s poorest continent is also the world’s richest in natural resources. Why is this so?

In the early years of independence, many African governments sought, according to the prevailing fashion of the time and also as a reaction to colonial exploitation, to control the commanding heights of economy and nationalized their industries. But it was, as the world eventually discovered, a false trail and a false promise. History has shown that nowhere in the world do governments have the skills to run businesses efficiently or profitably. And yet the damage was done: investors went elsewhere, and even when governments eventually invited them back, years of under-capitalization and neglect, inflexible labour markets, and the persistence of statism made re-investment unattractive.

In more recent years, and in some of the most richly endowed countries, natural resources, especially those most easily exploitable, have also served as a source of conflict as corrupt governments and rival warlords fought for ownership of the spoils. It has become easy, perhaps too easy under these circumstances, to blame Africa’s natural wealth for Africa’s poverty. After all, natural resources are morally neutral; they can be a source of good or ill, depending on the measures taken to protect them against the greedy and the corrupt and so ensure that their benefits accrue to the people, and not just to a corrupt few.

In discussions about Africa, much is heard of the need for “good governance” as a condition before the aid coffers are opened. But it is not as a key to unlocking aid funds that the need for good governance is most pressing; rather, good governance is necessary if Africans are to manage their natural wealth and thereby generate prosperity. This is not a “condition” imposed by the developed world on the developing world; it is simply a statement of fact. Direct investment, whether foreign or domestic, is a key indicator of a nation’s economic health. Companies, in particular those who are committed for the long term and who will make a real contribution through taxes, jobs and community programs, require the assurance of good governance before they can invest their own and their shareholders’ money.

Mining is a risky business, demanding deep pockets, large amounts of upfront capital, and long-term commitments. It can cost up to US$1 billion and take nearly a decade to bring a diamond mine on-stream. A deep-shaft gold mine can take up to 20 years to reach maturity. It is understandable, therefore, that responsible mining companies and investors require a matching long-term commitment from government to reduce the non-mining risk. I don’t believe it is an onerous commitment, for its requirements can be summed up in three words: clarity, certainty and transparency. These need to be the hallmarks of mining legislation.

Investors need to know the length of their lease and the terms of its renewal, and that the terms under which they are prepared to risk their investment will remain unchanged for an extended period. If they follow this route, countries will attract the best investors, both domestic and foreign, and ensure that Africa’s natural riches are used to produce wealth for all its people. Once a government creates and sustains a stable and predictable legislative environment, the rewards for investors and citizens alike will be manifold and long-lasting.

The first and most obvious reward will be predictable tax revenues, which can be used to develop infrastructure, education, housing and all the other things Africa so desperately needs.

But there are others benefits. No responsible mining company treats its operations as an island sufficient unto itself. A company’s workforce and management must reflect the country in which it operates. Toward this end, responsible companies spend a great deal on scholarships and training to ensure a transfer and broadening of skills to and within the local population. As well as the transfer of skills, the host country benefits from money transfers to the surrounding community — not only through employment but through purchasing policies that favour local communities, stimulating small and medium enterprises. These are but some of the sensible requirements set out in South Africa’s mining charter, and no responsible investor should be put off by them.

A better future for Africans depends on the combination of efficient governments and long-term investors. Not only will this com
bination lift the current generation out of poverty; it will expand and cascade through the generations. I don’t doubt for a moment that if Africa, and those who wish it well, do not follow this path and encourage responsible long-term investors, their place will be filled by irresponsible investors — the very people who flourish where rules are opaque and decisions are made on a political whim, and whose only contribution is to the bank accounts of a few corrupt politicians. These are the people who have pillaged so much of Africa’s resources and left nothing behind but poverty and conflict over the diminishing spoils. Their days, I hope, are passing.

There is no doubt that without the discovery of gold and diamonds over a century ago, South Africa would have remained an impoverished pastoral backwater. The needs of the mining companies, together with the indigenous labour on which they depended, created the industries and the physical and financial infrastructure that helped to turn the country into Africa’s economic giant.

Botswana’s proven ability to manage its natural resources remains a model for other countries. Not only has the government adopted a mining regime that is both predictable and transparent; the taxes generated by diamond mining have contributed to better roads, schools and hospitals. Fiscal prudence, certainty, open democracy, and respect for the rule of law have turned Botswana into an African success story.

A recent World Bank report ranked Botswana 19th on a list of the 145 most open economies in the world. The report considered productivity levels, investment potential, lack of corruption, labour flexibility, access to credit, and the legal protection of contracts, property registration and the protection of investment.

There is no reason why all of Africa should not be well-governed. Instead, some of the potentially richest countries continue to tolerate the dictators, warlords and party elites who have ransacked their wealth and reduced their people to penury. And there is no reason why a well-governed Africa should not be able to throw off the shackles of aid dependency and compete on equal terms. Some African countries are already doing so; others will surely follow.

The West must realize that there are at least three categories of African states: those that have reformed and with which strategies for reinforcing success have to be developed; those that have stabilized and need to work in partnership to move on to a higher growth trajectory; and those that have failed and remain unstable. In essence, Africa and its states should be “differentiated,” a reality too often ignored by continent-wide commissions and other bodies whose outlook is based more on the past than on the future.

— The preceding is the second excerpt of an edited speech presented recently at the International Institute for Strategic Studies in London, U.K. The author is the chairman of De Beers.