12. BRIAN KITHINJI
Brian Kithinji
RICH CONTINENT, POOR PEOPLE: DEMYSTIFYING AFRICA’S CURSE OF WEALTH
Within Africa’s political economy lies a dark history of plunder, exploitation, and mismanagement of its mineral resources. Today, the continent stands at a crossroads in its transformation journey. The economic boom of the 2000s yielded hopes and expectations of prosperity, but the sobering reality is inequality, corruption, conflicts, and poverty all increased.
To say ''Africa is rich'' is a cliché repeated by different peoples across millennia. Alexander The Great’s army marveled at the grandeur of palaces Ancient Egyptians built for their Pharaohs using the finest gold. Mansa Musa made headlines when he undertook his pilgrimage to Mecca with bags of gold. Portuguese explorers documented the splendor they found as they skimmed past African coastlines. Western imperial powers looked to Africa to supply raw materials for their industrial revolution. It is baffling then that the continent remains so poor, unable to share its wealth. Understanding the reasons behind this paradox is critical to achieving the Africa we want.
High levels of dependency
Between 2000 and 2014, eight of the world’s 10 fastest-growing economies, according to the World Bank, were located in Africa. Except for Ethiopia and Rwanda, the remaining six were all reliant on mineral exports. In fact, out of 54 countries, 24 rely on a few minerals – diamonds, gold, copper, and oil - to generate 75% of their earnings. While dependency is not necessarily a negative during good times, it leaves the country at risk of economic turmoil should the prices of commodities plunge. For instance, the fall in oil prices from $100 per barrel to $26 per barrel in 2016 pushed Nigeria, Africa’s largest economy and oil exporter, into a recession.
Dependency is more problematic because African countries exercise no control on the pricing of resources they produce, except for oil to some degree. Zambia has suffered more from dependency than any other country on the continent. It relies on copper for 75% of government revenues, yet pricing is pegged at the London Metal Exchange, notorious for its short-term volatility. During the commodities boom, Zambia’s economy grew by 6%, but as soon as prices fell in 2014, the economy stalled. Price fluctuations do not just affect fiscal accounts. They negate the ability of governments to run social programs that can help narrow inequality.
Exploitation by mining companies
Cecil Rhodes, a leading figure of British imperialism once said, “We must find new lands from which we can easily obtain raw materials.” Africa’s mineral wealth led to its conquest and colonization in the 19th Century. Unfortunately, the end of colonization did not close this chapter. While mining is the main source of foreign direct investment to the continent, multinationals have abused their power and tricked governments into accepting raw deals. After the oil discovery in Equatorial Guinea, American oil giant ExxonMobil offered the government just 12% of total profits.
Shocking as that may seem, no place on Earth can match the level of exploitation the Democratic Republic of Congo (DRC) has undergone. In 2013, the African Progress Panel, an initiative led by former UN Secretary-General Kofi Annan, discovered that the sale of DRC’s valuable mineral concessions and licenses at 16% of their actual commercial value lost the country $1.36 billion. In 2002, a United Nations report on the violence in DRC accused 85 companies based in the United States and Europe of breaking ethical guidelines. No surprise then that DRC remains one of the poorest countries in the world despite producing 80% of the world’s supply of coltan, a mineral used in every mobile phone.
Failed policies
It takes two to tango. The abuse of corporate laws and tax regimes by multinational mining firms does not happen in a vacuum. African governments must take a share of the blame for implementing policies that lie within the realm of a tried and failed theory of trickle-down economics. Granting tax holidays and tax breaks to mining companies then expecting them to pay their workers more has proven to be a terrible mistake. The average net profit of the top 40 mining companies grew by 65% in 2018, whereas the take by governments only climbed by 35%. African countries are estimated to be losing nearly $730 million annually in corporate income tax revenue from tax avoidance by multinational mining firms.
Moreover, African countries have failed to invest in extractive and mineral processing industries. Focus has always been production for export, but without value addition, it limits earnings in the global market and makes them import refined materials they already produce in mass. For instance, Angola, Africa’s second-largest oil producer, imported nearly 2 million metrics of refined oil in 2020.
Artisanal and Small Scale Mining (ASM) is the heartbeat of African extractive industries. It consists of nearly 240 million informal workers who dig, process, and wash minerals using low technology and medieval tools. While African workers toil at the bottom of the food chain, foreign expatriates occupy most white-collar positions. One such example is in Gabon. The discovery of oil and manganese lifted the country to upper-middle-income economic status, yet 40% of the 2.2 million citizens are unemployed and 60-70% live below the poverty line. The bourgeoisie in Libreville consists of French technocrats who disproportionately benefit from a sector that employs just 5% of the population despite contributing 45% of its GDP.
In conclusion, Africa’s transformation is not a matter of if but when. However, for the continent to continue on its development trajectory, it requires concerted efforts to translate mineral wealth into socio-economic gains for everyone. Doing so must involve learning from past mistakes, implementing the Africa Mining Vision, the African Continental Free Trade Area, and country-specific anti-corruption and taxation laws.
REFERENCES
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Baldwin, Richard, and Frédéric Robert-Nicoud. 2014. “Trade-in-goods and trade-in-tasks: An integrating framework.” Journal of International Economics 92: 51–62.
Jales, Mario. (2017). The missing link between economic growth and development: The case of copper-dependent Zambia.
World Bank (2015): Africa’s Pulse.
