Why Africa’s wealth doesn’t make Africans richer

CNN
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The Democratic Republic of Congo’s Katanga province is endowed with vast natural wealth, including vast deposits of precious minerals such as diamonds, gold and tantalum.

Katanga experienced a remarkable mining boom at the turn of the century, when President Laurent Desir Kabila and his son Joseph granted licenses to international mining companies to mine its treasures.

The deal brought wealth to Congo’s elites and even more to the prospectors, but little to the poverty-stricken people. Between 1999 and 2002, Kabila’s government “transferred ownership of at least $5 billion in assets from the state-run mining sector to private companies under its control, without compensation or benefit to the national treasury,” a UN investigation found.

This bonanza coincided with a brutal crackdown on dissent. In 2004, a small group of mostly civilians occupied a mine run by Australian company Anvil Mining in the village of Kilwa, protesting that the company was making huge profits without paying local workers.

Congolese troops crushed the uprising, killing about 100 people, many of whom were summarily executed, according to a United Nations report.

Tom Burgis, an investigative journalist at the Financial Times, says the combination of staggering wealth, rampant violence and extreme poverty in the Democratic Republic of the Congo is no coincidence, but part of a pattern that is causing devastation across Africa.

In a new edition of his book The Looting Machine, the author explores the contradictions of “the world’s poorest and perhaps richest continent.”

Burgis, a former correspondent in Lagos and Johannesburg, encountered various thieves and robbers during his travels to dozens of resource-rich countries. What they have in common, however, is that the large-scale expropriation of colonial resources has hardly slowed through the post-independence era, even as new beneficiaries have emerged.

“Western governments should not wield commercial and political power at the same time and should not use one to benefit the other,” Burgis said. “In a colonial state…the British or Portuguese would develop a small number of local populations who combined political and commercial power to control the economy.”

“When foreign powers leave, they are left with an elite that does not differentiate between political and commercial power. The only source of wealth is the mines or the oil fields, and that is a recipe for a highly corrupt state. In places like Nigeria, the ‘exploitative elite’… sought to extract for themselves the rents that oil and mining resources generated.”

Burgis points out that the continued presence and power of oil and mining companies is causing a colonial hangover.

“Multinational companies have enormous economic and political influence in post-independence African countries,” he says. “Therefore, there is almost a straight line from colonial exploitation to modern exploitation.”

Burgis argues that the ability of governments to rely on resource revenues leads to corruption and repression because governments are not accountable to their citizens through a social contract based on taxes and representation.

He cited Angola, which derives almost half of its GDP from oil, as an example of a government “as a service to the elite.” A 2011 IMF audit revealed that $32 billion, a quarter of state revenue, disappeared from official accounts between 2007 and 2010.

Angolan elites refuse accountability and will not tolerate any challenge from the people, Burguis added, recalling the recent jailing of an activist for publicly reading a pro-democracy book.

“Governments can act that way if they don’t need the consent of the people,” the authors say.

Angola has taken steps in recent years to address these criticisms, and its 2012 elections were deemed “generally free and fair” by independent observers. However, human rights organizations attest that repression remains a fact of life.

The growth of offshore banking in the late 20th century created new opportunities for resource barons to cover their tracks, practices exposed in the Panama Papers.

Israeli businessman Dan Gertler was an early pioneer. After forging a close friendship with President Joseph Kabila of the Democratic Republic of the Congo, he was given near-monopoly rights to the country’s diamond exports and quickly became a billionaire. Mr. Gertler routed the cash through an elaborate network of offshore accounts in tax havens, keeping details of the controversial transactions secret.

“In the case of African resource trade, offshore funds have been found to hide suspicious transactions,” Burgis said. “In the 1980s, bribery literally meant handing over the keys to a car full of cash to the official you were trying to bribe.”

“Bribery is now more sophisticated and increasingly difficult to define in the case of offshore transactions or people given shares in offshore companies. Many offshore secrets need to be unraveled to see the conflict of interest at its heart.”

The era of global finance has opened African markets to a new generation of mysterious traders. Mr. Burgis spent years following the footsteps of Mr. Sang Pa, an elusive Chinese businessman who traded under multiple aliases and across the continent, from oil in Angola to diamonds in Zimbabwe. Mr Pa is believed to head the secretive Queensway Investors Group, and Mr Burgis claims he represented the Chinese state, a claim the government denies.

Burgis is skeptical that the resource industry can reform.

“There is a troubling possibility that the natural resources of these countries will not be exploited for the common good,” Burgess said. “(Almost) everywhere that receives a significant portion of its revenue from oil and mining is poorly run and often violent. It is the nature of these industries that causes these problems.”

Botswana and South Africa are well suited to move up the value chain, developing highly skilled industries from their natural resources, as well as exporting raw materials such as diamond polishing and manufacturing of metal products. Burgis believes the effects of dependence can be reduced by diversifying the economy away from a single resource, as Nigeria’s President Buhari’s government is attempting to do.

He has suggested that an alternative would be to impose high tariffs to keep resources at home and protect domestic industries, but African leaders have been reluctant to adopt such measures.

“We have a global trade structure with strict rules regarding the imposition of tariffs,” Burgis said. “African countries have adopted market orthodoxy, which has reduced the state and embraced global economic competition, in which African countries are overwhelmingly the losers.”

Responsibility for the plight of resource-dependent countries goes beyond traders and dictators. The global economy still requires large supplies of raw materials from Africa, making it imperative to sustain existing disruptive models.

Mr Burgis praises measures such as the Kimberley Process to stop the ‘blood diamond’ trade, but feels developed countries can go further.

“The lesson for people in the West who want to deal with the damage caused by the oil and mining industries and the corruption that comes with it is to ‘get your house in order,'” he says. “There is a tendency to preach to African rulers, but the problem lies in the global financial system.”

The authors propose a global public registry of companies and trusts to counter the use of shell companies in illegal transactions.

“It’s not Africa’s fault that financial secrecy is kept,” Burgis said. “Addressing parts of the global system that can be regulated by Western capital.”

The nature of global supply chains means that complicity in resource-extraction crimes ranges from African dictators to European mobile phone buyers.

At every level, delusion is a powerful barrier to change. Burgis recalled a meeting with a leading figure in Angola’s kleptocratic regime, who passionately claimed he was protecting his people from even worse abuses.

“It’s human nature,” Burgis says. “No one thinks they’re the bad guy.”