On Africa’s big dreams

Source: Independent, 16/04/2018

Last month, Rwanda hosted the African Union’s summit on the Continent
Free Trade Area (CFTA). The discussions were as inspiring as they
were frustrating. Leaders from government and the private sector
talked big about the benefits of integration. Some even suggested an
African crypto-currency. There is a mistaken belief that the
existence of a common interest is sufficient to promote a collective
effort to achieve it. This is rarely true.
African nations are young; they lack entrenched interests and
profound national culture to drive consistent policy. So they
sacrifice broader national interests over petty squabbles. For
instance,I attended a discussion where South Africa’s president,
Cyril Ramaphosa, was a panelist. The summit was being held in Rwanda.
Ramaphosa spoke eloquently on African integration. Yet South Africa
imposed a visa ban on Rwandans because of a disagreement between
Kigali and Pretoria during the Jacob Zuma administration. Why punish
ordinary Rwandans over a quarrel with their government?
The challenge to integration in Africa is the tendency to seek big
dreams when our governments have failed to fix small things. For
example, it is very hard for Africans to travel, leave alone to work,
within Africa due to poor air connectivity; difficult visa and
working permit requirements. Ugandans need a visa to travel to the
Democratic Republic of Congo and South Sudan next door. So the gap
between rhetoric and action in Africa is huge.
One of the reasons many people admire President Paul Kagame is he
matches his words with government policies. Rwanda is the only
country in Africa that allows all Africans to get a visa on arrival.
How can Africa integrate when small things like ease of travel to
visit or work by Africans within Africa are very difficult for our
governments to implement? Does it need a summit of heads of state to
remove visa requirements for Africans traveling within Africa?
Without such a summit, most African countries allow Europeans and
North Americans to apply for visas at the port of entry.
There were many discussions of how to make Africa hospitable to
Foreign Direct Investment (FDI), by which they meant attracting
American, European, Indian, Chinese and Middle Eastern capital. There
was zero (and I mean zero) discussion of how to harness domestic
capital as a driver of transformation. FDI has become the obsession
of every African country and leader. It is easier for even a conman
pausing as a foreign investor from China, America, Europe, the Middle
East or India to meet a president of an African country than a big
genuine local investor.
The CFTA is meant to promote continent trade. But we must remember
that international trade is a value chain: some countries produce
cotton; others weave cloths while others market high fashion. Some
countries mine iron ore; others produce steel while others sell
automobiles. How much a country earns from trade depends on its
position in this value chain. The poorest countries export raw cotton
and iron ore; middle-income countries weave cloths and produce steel.
The richest countries market high fashion like Dolce and Gabbana,
Valentino, Hugo Boss and Louis Vuitton and Toyota, Ford and Audi.
If you export raw cotton, you earn 1.9% of the international price of
the final product â€` a Louis Vuitton shirt. If you weave cloths, you
earn about 15% of the final value. For labeling the same cloths Louis
Vuitton, the designer takes about 60 to 65% of the final value â€` the
rest going as a margin for transportation, retail, storage etc. The
same applies to those who export iron ore. To be producer and
exporter of unprocessed goods, as Africa has done for the last 100
years, is to render oneself perpetually poor. This has harmful
implications for the welfare of our people and the politics of our
nations. Poor countries are characterised by “bad politics”.
Therefore, the process of moving from a poor to a rich country is a
process of upgrading from being exporters of low value unprocessed
goods to high value manufactured products. Yet there was little
discussion of manufacturing as a driver of ourtransformation. Indeed,
if you look across Africa, the continent is actually
deindustrialising i.e. the ratio of manufacturing to the Gross
Domestic Product (GDP) is declining in many countries or has been
stagnant for decades or is growing marginally â€` except for Ethiopia.
Even South Africa, Africa’s industrial giant, is deindustrialising.
Now why is FDI a poor vehicle for Africa’s transformation? As a rule,
multinational corporations do not shift the most valuable aspects of
their business to their subsidiaries. Apple is not going to shift the
design and marketing of the iPhone to her subsidiary in Nairobi.
Forget it. It will remain in California. However, it can outsource
assembling, which it has done to China. Design and marketing of the
iPhone constitutes 60 to 65% of the total value, assembling only 15%,
the rest going into retail, transport, insurance etc.