Africa needs international investment more than aid: Oppenheimer

The following is a condensed portion of a speech given by Nicky Oppenheimer, chairman of De Beers, to the first annual gala dinner of the Canada-South Africa Chamber of Business, held in Toronto in April.

The chamber has chapters in Toronto and Ottawa, with affiliates in Montreal and Vancouver.

According to the chamber, combined trade between the two countries approached $650 million in 2001, and Canadian investment in South Africa has grown to almost $1 billion.

Relationships and trading relationships between Canada and South Africa are extraordinarily important, and they go back a long way. One must hope that in the years ahead, they will develop even more, and most particularly in the field of natural resources.

Increasingly, Africa is becoming not only an important place to invest, but also a safe place to invest, which hasn’t always been the case.

All too often, for evil to flourish, all that is necessary is for good people to do nothing. Evil has indeed flourished in many parts of Africa in recent times. We’ve seen all those dreadful pictures of what happened in Rwanda, the children without limbs in Sierra Leone, the countless landmine victims in Angola, and the all-too-many populations in countries of my continent riven by civil war or ruled by despots.

All feed a vision of Africa that The Economist, in one of its headlines, dubbed “The Hopeless Continent.” This is afro-pessimism, which, for far too long, has made the continent increasingly well-known to international aid organizations but increasingly alien to the class of people who could give it the help it really needs: the international investor. As both an African and an investor, I know that even though people may be pessimistic as a result of what they’ve seen in the past, that pessimism can no longer be an excuse for inaction in Africa.

Certainly, Western governments, with Canadian Prime Minister Jean Chrtien leading the way, know that a globalized economy cannot succeed if a continent of more than 800 million people is condemned to failure.

But there’s another factor which has helped elevate Africa to an important place in the agenda of the upcoming G-8 meeting in Canada, and that is the warning that flows from the incidents of 9-11 in New York.

This is certainly not to suggest, as some indeed have, that there is a link between poverty and terrorism. But as Afghanistan has shown, there is a link between terrorism and failed states. International terrorist networks act like parasites on failed states, corrupting and directing their governments, even as they use them as a base from which to launch their dreadful adventures. And Africa certainly has had more than its share of failed states.

Therefore, it is self-interest as much as humanity that has convinced a growing number of good men that they can no longer do nothing. Inaction in Africa is no longer an option.

Neither is this action seen as something that other countries take on behalf of a passive Africa. Today, our continent is thinking — and will shortly be doing — for itself. Indeed, it aspires to be the lead partner in the New Partnership for African Development (NePAD) program, in which my president, Thabo Mbeki, has been such an important mover, and which is also being promoted heavily here by Mr. Chretien and by British Prime Minister Tony Blair.

NePAD has its origins in Africa, and it was honed by South Africa and Nigeria before it was further developed in discussions with the G-8 nations.

The U.S. has also come to the discussions in a big way. In March, at the United Nations conference on financing development in Monterrey, Mexico, President Bush signaled the biggest increase in U.S. development aid in history, promising to put more than US$10 billion on the table over three years. It is certainly my hope that Africa will grab a large portion of these billions.

This level of activity does, of course, pose the inescapable question: “Will it make a difference?” After all, during the past 30 years, Africa was by far the largest recipient of Western (and particularly U.S.) aid, and little benefit appears to have resulted. There’s nothing new or surprising about this dismal statistic.

What is new is the developed world’s insistence, and Africa’s acceptance and recognition, as articulated in NePAD, that funds poured into failed states governed by kleptomaniacs not only fail to solve problems; they can actually make them worse.

Explicit in NePAD is the golden rule of accountability and acceptance that this partnership for development will be conditional on African countries’ adopting the principles of good governance and sound fiscal management.

That commitment should win worldwide support. It certainly has my support and the support of De Beers. We see that it is going to bring benefits not only to southern Africa but to people in all parts of Africa who subscribe to the tenets set out in that document.

This is important for our future in Africa and for the future of all developed countries. It implies recognition, on the part of African leaders, that the persistent poverty of much of the continent has been caused by bad government and that only governments can deliver the answer through systematic and systemic reform.

Conditions

The Monterrey consensus is equally blunt: countries bear the primary responsibility for their own economic and social development. Good governance is essential. Sound economic policies, solid democratic institutions responsive to the needs of people are the basis for sustained growth. The precise terms of these conditions have still to be fleshed out, and some remain a little vague even today.

Among all the words, however, one gets the feeling that this time it’s serious. There are leaders on both sides of this partnership who accept that we cannot have economic development without major structural and political reform.

Moreover, and I find this especially heartening, there is a growing sense in many parts of Africa that good governance is much more than something that one adopts reluctantly in exchange for Western aid; it and the values it embodies are essential in and of themselves. This is surely the first step on the road to progress: a value change that will lead inexorably to a system change.

It is also — and here I come to my main message — the first step toward reassuring private investors that their money is safe in Africa. Private-sector capital flows and direct investments, from both internal and external sources, are, and will remain, the key to Africa’s economic growth. Development funds can set the table, but they cannot provide the food. Only private investment can do that.

More than a promise

If the first requirement of private investment is good governance, then it has to be more than a vague promise. In the area I know best, mining, this is especially essential, given the size of the investment and the time it takes to bring a mine to production. Security of tenure, property rights, contracts enshrined and transparent, predictable legislation administered by courts immune to political whim, and bureaucrats immune to corruption are all essential preconditions to good and safe investment.

I stress good and safe investment, for Africa has certainly had its fill of the other sort: fly-by-nights who have fed off its greatest single competitive advantage — mineral wealth and natural resources — and put nothing back, except into the pockets of warlords and ruinous regimes.

Indeed, the misuse of this wealth has been such that a number of economists, who should know better, now suggest that Africa’s natural resources are not the key to its prosperity but rather the reason for its past failures.

Africa, they say, is incapable of coping with the riches of which a benign — or depending on the line you take, malign — providence has endowed it, and would be better served if they’d been left in the ground.

I think that’s an absolute load of rubbish. Certainly, in many parts of Africa, natural resources, from easily accessible minerals to timber, have often been the source of personal profit a
nd public squalor and exploitation. But again, as an African and as chairman of De Beers, I know that it doesn’t have to be like that, and that responsible companies working in a transparent, secure and predictable legislative environment with a governments that understand what good governance is all about, can produce the economic growth, the jobs, the fiscal income and the social benefits — from housing to hospitals, from schools to universities — that Africa so desperately needs. Bad investors shy away from the light of good governance; good investors need that light to invest, survive and prosper. Certainly good investors are not in it for the immediate short-term gain. They are not the grab-it-and-run merchants; rather, they are committed to building for the future, and they understand the model for good corporate governance.

Morally neutral

Natural resources are morally neutral. How they are managed will determine whether they are a source of temptation to be fought over by rival elites, or a source of immense and continuing benefit to the people in the countries in which they are found, reinforcing a virtuous circle rather than being at the core of a vicious one.

Good governments are committed to serving the people; bad ones, to serving private interests. Good governments understand the difference between the public and private purse, and are committed to building rather than destroying the countries they rule. Africa is replete with examples of both types, and neither the G-8 discussions nor the Monterrey consensus nor NePAD will provide a single answer to all of Africa’s problems.

The benefits of aid and investments that accrue to those countries that have adopted the path of virtue would serve as an example to encourage others to change their ways. Moreover, it’s vital for countries with any aspirations to good governance within their borders to keep a keen and watchful eye on their neighbours. Africa’s history means that foreign investors tend to take a regional perspective in any unfamiliar environment. They know that good citizenship flourishes in good neighbourhoods, and they believe, rightly or wrongly, that tolerance of bad behaviour in own’s neighbour can raise uncomfortable questions about one’s own probity. In a world in which many countries compete for the investment dollar, that question is often enough to tip the scales.

Trade barriers

These are not harsh preconditions; merely the necessary preparation of the soil into which private capital will flow and foreign direct investment can grow and flourish. In return, Africa has the right to expect that the world, and particularly the G-8 world, meets a condition of its own — I refer to the lifting of trade barriers against Africa’s exports, both manufactured and agricultural. It is much easier, in domestic political terms, to provide aid rather than trade, but it is also indefensible.

One precondition for Africa’s development is already present: the wealth of mineral resources which should give it a natural advantage in the global economy. The G-8 meeting in Alberta will, I hope, turn a deaf ear to those who believe Africa can develop without benefit of its natural resources, and to those who argue that good governance is at best a distant ideal, and at worst an alien concept.

Southern African countries, the ones I know best, have proved that both these propositions are false. Men and women of good will, who will meet to discuss these issues in Alberta, can do Africa no greater service than to help the world to realize that Africa is endowed with enormous human and physical potential.

The scene is indeed being set and, under the umbrella of NePAD, investment will be attracted to Africa to develop those natural resources. And I think it’s likely, and hope it will be the case, that Canada, which has such a history of mining and development of natural resources, will be the lead player in that process and make a real and important contribution to the development and betterment of my continent.