Anyone remember the pronouncements by Blair and Brown, Bono and Sir Bob, earlier this year about saving Africa? The white knights riding to the rescue were specifically named as the forces of private enterprise, as part of a package of measures that included fine-sounding phrases about aid, trade and 'better governance'. It is only weeks later, yet this September those illusions seem so shallow -- with little aid, no real debt 'relief', and many NGOs roundly condemning the G8/Live8 deals as enforcing further economic restructuring on poor countries.
African countries have tried in the 1990s to attract foreign investment, by de-regulating and privatising their economies. Now a UN report has been published that shows how private investment and multinational corporations can be a curse, rather than a blessing, for Africa. The report, 'Economic Development in Africa, Rethinking the Role of Foreign Direct Investment', by the UN Conference on Trade and Development (UNCTAD), September 2005, is highly critical of poverty reduction solutions that rely on attracting foreign direct investment (FDI). Such investment is usually the result of corporate involvement in a particular area, and the report says that 'expectations have been raised that by creating jobs, transferring new technologies and building linkages with the rest of the economy, FDI will directly address the continentīs poverty challenge'. On the contrary, FDI can sometimes mean that a country is getting poorer -- a privatisation of a state owned company, for example, would show a net 'increase' in investment, but not necessarily result in an improved service or more jobs. 'M&As; [mergers and acquisitions] have accounted for a very high percentage of inflows in particular years, often as the outcome of privatization programmes.' And where FDI has occured, it has often been isolated in 'enclaves' and oriented towards export industries. This could mean a company investing heavily in a single mine or cash crop plantation, but with little benefit to the rest of the country outside this small area of high investment. In addition, profits from this small enclave will often mostly flow overseas, back to the corporation's home market, rather than circulating within the country or Africa itself. UNCTAD states that a balanced approach 'will recognize that the inflow of capital from FDI may be a benefit, but that the subsequent outflow of profits earned on the investment may be so high as to make it a very substantial cost... Where the firm does not create new assets, but merely takes over existing locally owned ones, the net benefits may be particularly hard to discern.' (pp 25-26) Transnational corporations are particularly good at making their profits flow overseas, due to their ability to hire lots of lawyers and money specialists to avoid taxation -- 'through the use of creative accounting practices, firms can undervalue levels of profits in order to reduce tax burdens' (p.57). Likewise, due to their international position, TNCs are also well placed to remove investments from Africa: 'some of the largest recipients of FDI have also been those with the greatest capital flight.' (p. 41) The report comes out in favour of a strategic approach to economic development by African countries, rather than leaving matters to corporations. 'Conventional approaches to FDI assume that TNCs are the most efficient way of allocating resources on a global scale in the face of international market failures of one kind or another, and that only if left alone from government interference will freely flowing capital act as a powerful force for closing income gaps across the global economy...Neither theory nor history suggests that economic catch-up can be left to the interplay of global market forces and large international firms from advanced industrial countries.' (p. 27)
African countries have tried in the 1990s to attract foreign investment, by de-regulating and privatising their economies. Now a UN report has been published that shows how private investment and multinational corporations can be a curse, rather than a blessing, for Africa. The report, 'Economic Development in Africa, Rethinking the Role of Foreign Direct Investment', by the UN Conference on Trade and Development (UNCTAD), September 2005, is highly critical of poverty reduction solutions that rely on attracting foreign direct investment (FDI). Such investment is usually the result of corporate involvement in a particular area, and the report says that 'expectations have been raised that by creating jobs, transferring new technologies and building linkages with the rest of the economy, FDI will directly address the continentīs poverty challenge'. On the contrary, FDI can sometimes mean that a country is getting poorer -- a privatisation of a state owned company, for example, would show a net 'increase' in investment, but not necessarily result in an improved service or more jobs. 'M&As; [mergers and acquisitions] have accounted for a very high percentage of inflows in particular years, often as the outcome of privatization programmes.' And where FDI has occured, it has often been isolated in 'enclaves' and oriented towards export industries. This could mean a company investing heavily in a single mine or cash crop plantation, but with little benefit to the rest of the country outside this small area of high investment. In addition, profits from this small enclave will often mostly flow overseas, back to the corporation's home market, rather than circulating within the country or Africa itself. UNCTAD states that a balanced approach 'will recognize that the inflow of capital from FDI may be a benefit, but that the subsequent outflow of profits earned on the investment may be so high as to make it a very substantial cost... Where the firm does not create new assets, but merely takes over existing locally owned ones, the net benefits may be particularly hard to discern.' (pp 25-26) Transnational corporations are particularly good at making their profits flow overseas, due to their ability to hire lots of lawyers and money specialists to avoid taxation -- 'through the use of creative accounting practices, firms can undervalue levels of profits in order to reduce tax burdens' (p.57). Likewise, due to their international position, TNCs are also well placed to remove investments from Africa: 'some of the largest recipients of FDI have also been those with the greatest capital flight.' (p. 41) The report comes out in favour of a strategic approach to economic development by African countries, rather than leaving matters to corporations. 'Conventional approaches to FDI assume that TNCs are the most efficient way of allocating resources on a global scale in the face of international market failures of one kind or another, and that only if left alone from government interference will freely flowing capital act as a powerful force for closing income gaps across the global economy...Neither theory nor history suggests that economic catch-up can be left to the interplay of global market forces and large international firms from advanced industrial countries.' (p. 27)