Don't Blame Africa's Underdevelopment on Corruption and 'Bad Governance'.

✑ GYEKYE TANOH (INTERVIEW)` ╱ ± 12 minutes

Once you have hidden the structure, then you can blame the pettier parasitic bribery as the author of the misery.

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The discourse of ‘good governance’ suggests that the States in developing countries are deeply and congenitally corrupt. It ignores, even obscures, the deep structural dynamics that push a country to become merely the exporter of raw materials.

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From: Tricontinental Institute, May 2019. ╱ About the author

Gyekye Tanoh is head of the Political Economy Unit at the Third World Network-Africa based in Accra (Ghana), conducting research and advocacy on globalization, trade and development. He is a regular contributor to African Trade Agenda and a number of other publications on a wide-range of subjects considering impacts of globalization issues in Africa. He is also deputy National Coordinator of the Ghana Coalition Against Privatization.

In May 2011, the International Monetary Fund (IMF) published a Working Paper by Burcu Aydin called ‘Ghana: Will It Be Gifted Or Will It Be Cursed?’ (WP/11/104). Oil had just been discovered off the shore of Ghana. This anticipated a bounty of revenue for the country. Aydin asks whether Ghana will face the ‘resource curse’. The resource curse – also known as the Dutch Disease – occurs where revenue from sale of this resource rushes into a country, appreciates the currency and causes a major crisis in other parts of the economy. Looking at 150 middle- and low-income countries, Aydin came up with a strong finding: ‘Results show that there is a poverty trap for poor resource-rich countries due to their low institutional quality’. Bad governance and poor macroeconomic management, Aydin suggests, diminish the possibility for the onrush of revenues from natural resources to enhance a country’s development. There is no mention, in the IMF’s Working Paper, of the other actors in the process – namely, the multinational companies that dominate the natural resource extraction business. The pro-corporate literature explains problems in the resource economy in two ways: 1) poor macroeconomic management that allows revenues to flood the economy and appreciate the currency, 2) bad governance because of corruption and theft by government officials.

Nothing in the IMF document interrogates the role of multinational firms. If anything, the Western scholarship and media will point a finger at the Chinese firms in Africa – almost as a way to distract from the fact that the most powerful firms in the natural resource extraction business are not Chinese.

The top ten multinational firms that operate on the African

continent are:

1. Anglo-American (UK)
2. Rio Tinto (Australia)
3. Vale (Brazil)
4. BHP, formerly BHP Billiton (Australia)
5. Barrick Gold (Canada)
6. Freeport-McMoran (US)
7. Newmont Mining (US)
8. Teck (Canada)
9. Goldcorp (Canada)
10. Alcoa (US)

To ignore the power of these firms that take the vast bulk of the revenue from the resources extracted from the African continent is to miss a key institutional problem faced by the African countries: colonialism. That is, African countries face plunder at a colonial scale, which is to also say that these countries do not have sovereignty over their own resources.

Western, pro-corporate scholarship suffocates the possibilities for a future. There is little space given to the struggles for the people on the continent against the surplus extracted out of their countries and from their labour power. Alien to this entire literature is any debate about an exit from the capitalist relations that structure the resource extraction from the continent. It is in this context that we are interested in the possibilities of resource nationalism or resource sovereignty.

Can resource nationalism or resource sovereignty provide tools around which to build a national-popular collective will against the capitalist depredations of the continent?

To elaborate on these themes of capitalist plunder and resource nationalism, Tricontinental: Institute for Social Research spoke with Gyekye Tanoh, head of the Political Economy Unit at the Third World Network-Africa based in Accra (Ghana).

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One of the great scandals of the 21st century is the theft of resources from the African continent. Could you please put that theft in some context?

GT: Africa, from its colonial history to its post-colonial history, has specialised as a source and supplier for raw materials for the rest of the world. Much of the region’s political policy slates continue to be dominated by foreign powers as well as by international financial institutions, such as the World Bank and the International Monetary Fund. History, from slavery and colonialism to the present, has created a landscape where the dominance of foreign companies is immense, more pronounced than in any other part of the world. A defining feature of this dominance is the tremendous power imbalance in which there is an immense influence of corporations to exploit the continent’s labour and resources, to destroy the environment and to dictate policy to the governments. In other countries – let’s say Canada – a corporation is forced to respect certain laws, relatively speaking, regarding environmental regulations, corporate tax legislation and some labour standards. But the Canadian firm in Africa operates without any of these restrictions. What’s good for Canada is not good for Cameroon.

A recent report from the Bank of Ghana offered some shocking statistics. It said that of the $5.2 billion worth of gold exported by foreign-owned mining firms from Ghana, the government received only $68.6 million royalty payments and $18.7 million in corporate income taxes. In other words, the government received a total of less than 1.7% share of the global returns from its own gold. Since these figures grossly under-estimate the value of gold exports, the returns to Ghana would be much less. What’s even more shocking is that – based on the analysis of the Bank of Ghana – the share of the wealth that goes to the communities directly impacted by the mining is 0.11%.

This particularly aggravated structure of plunder has roots in the period of the debt crisis of the 1980s.

Was this always the case? No doubt that the African continent has been exploited for a very long time, but this particularly aggravated structure of plunder has roots in the period of the debt crisis of the 1980s. Before this, in the era of national liberation, states tried to protect their raw materials and gain better trade agreements. But the debt crisis weakened their bargaining power. African governments in the late 1980s and 1990s were pushed by international finance institutions and transnational corporations to adjust their bargaining attitude. They were urged to rapidly promote export-led growth based on comparative advantage theory. It mattered little that the ‘comparative advantage’ of most of the continent was in the export from extractive sectors rather than from the industrial sector (which has higher value-added potential). Export of unprocessed or barely processed raw materials earned revenue, which was not ploughed into domestic investment but was used to pay back the debt.

What we saw as a result of this export of raw materials and export of revenue to pay back the debt was premature deindustrialisation. In 2003, the UN Conference on Trade and Development (UNCTAD) put forward this concept of premature industrialisation to explain what was ongoing in the Global South. It refers to the collapse of the manufacturing sector before it has become integral to the economy. If manufacturing does not develop, then the political class drums up revenue by the export – in the African case – of raw materials. Domestic economies retrogressed, with productive employment and resource mobilisation shrinking and with aggregate demand falling. People could not afford to save or invest in local production or constitute viable demand outlets and supply linkages for production elsewhere in their local economies. Nor could the State raise enough resources to provide social goods and infrastructure. The structural marginalisation of the people weakened their ability to shape the State’s policy framework.

World Bank, Strategy for African Mining, 1992.

The growing dependence on raw material exports meant growing dependence on foreign corporations and foreign markets. This was demanded by the World Bank and sanctified by a document it put out in 1992. This document crisply states that governments should shift their policy ‘towards a primary objective of maximizing tax revenues from mining over the long term, rather than pursuing other economic or political objectives such as control of resources and enhancement of employment’ (World Bank, Strategy for African Mining, 1992). In other words, governments should merely export raw materials and allow foreign mining companies to thieve resources. There should be no attempt to ‘control resources’ or to create jobs.

As the World Bank and other international finance institutions pushed governments on the continent to export raw materials and not bother with the wider goals of development, an interesting dichotomy opened up. There was a new suggestion that ‘resource rich countries’ were ‘governance poor’. In other words, that the problem of corruption was not in the system as such, but it was in the political class and in the State. Is the discourse on poor governance another way to undermine social forces and institutions that might have pushed to democratise State policy?

GT: From the 1990s onwards, the term ‘governance’ was installed at the heart of development discourse. Everything was about ‘good governance’ and its importance. There is something very shallow about the conversation. It ignores, even obscures, the deep structural dynamics that push a country to become merely the exporter of raw materials and that give transnational firms power to set prices and to determine the share of revenue to be handed over to the States. It is not the ‘corruption’ of the government officials that brings Ghana only 1.7% of the gold revenues to the State’s coffers. The entire system that was set in place since the 1980s to force countries to rely upon raw material exports and to become dependent on foreign buyers is what leaves countries like Ghana with such a minuscule amount of the wealth taken from Ghana’s land. ‘Good governance’ is not going to solve this, unless ‘good governance’ refers as well to the deep structural dynamics.

It is not the ‘corruption’ of the government officials that brings Ghana only 1.7% of the gold revenues to the State’s coffers.

The mainstream discourse around resource governance – the language of ‘good governance’ – has several deeply distorting impacts. It implies that it is only the aberrant behaviours of the public officials that should be seen as corruption. Yet of course the lack of resources available to accountable public institutions makes it impossible to create or sustain meaningful domestic anti-corruption mechanisms. The overwhelming power of the transnational corporation makes it virtually impossible to apply genuine democratic and developmental governance norms to these firms when they operate in Ghana or Zambia or Papua New Guinea.

If the discussion goes to the low revenue numbers, then the international finance institutions turn the discussion towards natural market shocks. There are, they say, commodity booms and commodity busts. But this is insufficient as an explanation. Even in times of commodity booms – we find – the revenues are minuscule. It is in this time that we can see the political economy of extraction in its sharpest relief. An antidote to the boom and bust cycle, which does exist, is for public resources to be substantively dedicated to enhancing the productive activities of working people and the productive capabilities within the economy. This is possible in resource-rich States that have diversified economies, have autonomy from imperial domination and have social democratic institutions won by the struggles of working-people. These states create Sovereign Wealth Funds (SWF) from their natural resource export earnings. Norway is an oft-cited example of this. This should be a minimum requirement for all natural resource dependent countries: save in times of surfeit and use the SWF in times of scarcity. But during a commodity boom, there is simply insufficient revenue to build infrastructure and provide for the basic needs of the population. To expect Zambia or Ghana to build up that kind of sovereign fund from such paltry revenues and from such a narrow economic base that is so completely dependent on foreign markets and foreign capital is unrealistic.

In the era of financialization most SWFs invest mainly in financial securities. This was the case with Angola’s SWF, a huge chunk of which went to buying up financial securities especially in Portugal, its former colonial ruler. It lost out heavily on these ‘investments’ when Portugal got embroiled in the financial crisis of the Eurozone after 2008. Rather than invest in financial markets, States such as Angola and Nigeria could make direct investment in production through development banks. These banks would provide credit for agricultural and industrial cooperatives and other such initiatives that generate employment and goods and services to satisfy real needs. This requires States to control the financial sector and to have the public’s well-being at heart.

The language of ‘good governance’ is used to delegitimise any aspiration for nationalisation and the creation of a State monopoly. One striking fact is that Zambia’s copper industry was better for Zambia during the time of the State monopoly from 1970 to 1998. The returns to the State treasury from the copper industry in the post-State monopoly period have been just 3% of what they were in the bad old days of the State monopoly. This is an uncomfortable fact for the champions of privatisation. The discourse of ‘good governance’ suggests that the States in developing countries – like Zambia – are deeply and congenitally corrupt. The only salvation, they say, is for the country to adopt free market regimes. But of course, the result has been terrible. ‘Government deficits’ or ‘bad governance’ do not explain the deindustrialisation of Zambia nor do they explain the rollback from economic diversification. Because Zambia is now utterly reliant on copper exports, the international copper price movements have a preponderant and distorting effect on the exchange rate of the Kwacha [Zambian currency]. This distortion and the limited revenue from copper exports impacts upon the competitiveness and viability of other, non-copper exports, as a result of the fluctuations of the Kwacha. The fluctuations also impact the social sector. A study done in 2018 showed that changes in the exchange rates oscillated between -11.1% to +13.4% in the period between 1997 and 2008. The loss of funds from donors to the Ministry of Health in Zambia amounted to US $13.4 million or $1.1 million per year. Because of the collapse of the Kwacha between 2015 and 2016, per capita health expenditure in Zambia fell from $44 (2015) to $23 (2016).

The language of ‘good governance’ is used to delegitimise any aspiration for nationalisation and the creation of a State monopoly.

Corruption implies that perverse outcomes are the result of someone breaking the rules instead of as a result of the normal functioning of the system. Everything I have described is based on normal functioning. When the State allowed foreign firms to take control over raw material extraction and when the economy become dependent on the export of these raw materials at the expense of a project of diversification, the outcome is going to be less revenue for the people and an economy in long-term crisis. The discourse on ‘good governance’ avoids the normal functioning.

The resource governance discourse stands reality on its head. First, we get premature deindustrialisation, which leads to the terrible reality of poverty and hopelessness. Then we get the emergence of the discourse of corruption to explain the poverty and hopelessness. But it is not the corruption that creates the situation. It is the structure that weakens domestic capacities and democratic, participatory economic planning that can best ensure State accountability and effectiveness, sets aside the project of diversification and industrialisation and turns over the raw materials to foreign multinational corporations. Once you have hidden the structure, then you can blame the pettier parasitic bribery as the author of the misery. That’s what this resource governance discourse does.

Read the rest of the interview (pages 16-32) on thetricontinental.org.

Top image: Cover of World Bank, Strategy for African Mining, 1992.