The future is to follow China

Africa special: trade - Foreign-owned companies operating in Africa and the rural poor are victims o

When African and Asian colonies gained independence in the 20th century, their new leaders faced two main challenges: to consolidate quickly their political power while ensuring stability and, in the longer term, to transform their countries' economies away from colonial-era norms.

The new political elites aspired to develop industrial economies like those of the departing colonial powers: economies that could produce both raw materials and manufactured goods, using a local labour force that was healthier, better educated and better clothed than before.

At first, many expected Asia to remain mired in conflict while Africa would quickly surpass it. But the opposite has happened. Although much of Asia at first succumbed to bloody conflict, stability soon followed in the south and east of that region, and countries moved fast to address the economic challenge. In Africa, however, old conflicts still rage and new ones have erupted. With few exceptions, Africa's political elites have undermined their countries' economies.

Comparing Ghana and South Korea, for instance, the World Bank notes that the two were at similar levels of development in the 1960s. Yet by 1995, Korea's exports had increased 400-fold, while Ghana's had increased fourfold. In the latter country, average real earnings per head declined.

Thinkers on the left and right of the political spectrum agree that the private sector drives modern economic development. And Africa has one of the largest private sectors in the world. If classical economic theory were right, Africa should be a hive of economic activity and growth, with private individuals and households all trying to maximise their security and comfort. But today the vast majority experiences less of both and, in many instances, faces homelessness, violence and starvation every day.

The problem is that the theory assumes private individuals and firms are free to pursue their security and comfort while owning and controlling the means to do this. It assumes that they are free to exchange what they produce without hindrance and that where they can save, they are free to keep those savings and plough them back into improved techniques or other investments.

This is not the case for the private sector in sub-Saharan Africa. It consists predominantly of subsidiaries of foreign-owned companies and the rural poor. Neither of these groups is free to operate in the market place because each is dominated politically by non-producers who control the state. This is the weakness of the African private sector, and it explains its inability to become an engine of economic development. Africa's private sector lacks political power and is therefore not free to maximise its objectives. Above all, it is not free to decide what happens to its savings.

In short, the political elite uses its control of the state to extract savings from the rural poor who, if they could, would have invested those savings either in improving their skills or in other productive economic activities. The elite diverts these savings towards its own consumption, and to strengthen the state's repressive instruments. Much of what Africa's elite consumes is imported. So state consumption does not create a significant market for African producers. Instead, it is a major drain on national savings that might have gone into productive investment.

This explains Africa's growing impoverishment. The more the political elite consolidates its power, the stronger its hold over the state, and therefore the more rural societies sink into poverty and the more African economies regress.

Zimbabwe is a textbook case for the correlation between falling living standards and the growing power of the elite. In their struggle against the white minority regime, Zimbabwe's African nationalists enlisted in particular the support of agricultural workers and the rural poor, who make up most of the population. Although the government made strenuous efforts to support the rural poor in the 1980s, the ensuing power struggles, with all their bloodletting, caused the emerging political elite to discard its wartime constituency and enrich itself - to the great detriment of the national economy and the population at large.

Foreign companies have also tended to be at the mercy of the political elite. European joint-stock companies have operated in Africa since the dawn of the capitalist era. They started by financing and operating the ships that transported slaves to the New World. With the emergence of colonialism proper, these companies followed close on the heels of the colonialists' conquering armies and established agricultural plantations, mines, railways, harbours and new cities. Later they diversified into making consumer goods for the burgeoning African market and processing raw materials.

But when the colonialists retreated from the 1950s onwards, these subsidiaries lost their key protector. They soon fell prey to the whims of the new African political elites. The lucky ones were nationalised and their owners compensated. The not-so-lucky ones were "privatised".

Even the mighty western oil companies have not escaped. Every now and then, they are compelled to make huge payments into foreign private bank accounts held by the heads of state - and the leaders' families and friends - of oil-producing countries. The US Senate recently uncovered evidence that vast sums might have been paid by oil companies into the private bank accounts in Washington, DC of the president of Equatorial Guinea.

The result of the onslaught against Africa's private sector is predictable. In a recent report, the UN Industrial Development Organisation says that sub-Saharan Africa has deindustrialised over the past three decades, thanks to a widening productivity gap between agriculture and manufacturing and between manufacturing and the economy as a whole. Africa also loses more than 20,000 graduates annually, who emigrate out of the continent, according to the World Bank.

The New Partnership for Africa's Development was set up to combat sub-Saharan Africa's decline. While it may address some of the worst excesses of the political elite, it fails to tackle the fundamental malaise - the enormous imbalance of power between that elite and the key private sector producers. Until producers can control their own livelihoods and savings, there will be no development.

Sub-Saharan Africa needs a new type of democracy - one that will empower the region's private producers. First, the rural poor must become the real owners of their primary asset, which is land. This is the only way towards environmental improvement, as opposed to the current trend of rampant deforestation and desertification. To do this, freehold must be introduced and the so-called communal land-tenure system, which in reality is state land ownership, must be abolished.

Second, peasant producers must gain direct access to world markets without the political elite acting as the go-between through state-owned corporations. Internationally traded cash crops - such as coffee, tea, cotton, sugar and rubber - must be auctioned by the producers themselves rather than being sold first to state-controlled marketing boards.

New financial institutions are needed that are independent of the ruling elite, and which will address the financial needs of the rural societies as well as those of small- and medium-scale producers. These could be co-operatives, credit unions or savings banks. Besides providing financial services, they would undertake all the different areas of technical support that are not being provided by the political elite - the crop research, extension services, livestock improvement, storage, transportation and distribution that would help to make agriculture in sub-Saharan Africa more productive.

This is where foreign donors could play a more constructive role than at present, given their present efforts to sustain the political elites and African states with budgetary support and the like. Donors could support these independent institutions by providing the expertise to manage them and could to some extent help shield them from predators.

What socio-economic system would these changes bring about? Certainly not socialism. These changes would herald a capitalist market economy that answers the needs of African producers rather than the needs of colonialists and, more recently, those of the ruling elites, who try to maintain the colonialist vision of Africa as a primary producer for the industrialised world.

Sub-Saharan Africa should draw from the agricultural reforms in China over the past 25 years or so. After all, changes in the agricultural sector made it possible for China to embark on its current unprecedented industrialisation.

Moeletsi Mbeki is chairman of Endemol South Africa, a TV production house, and director of Comazar, which rehabilitates and grants concessions to railway networks in Africa. He is also deputy chairman of the South African Institute of International Affairs. A version of this article first appeared in Global Agenda 2005, and was based on proceedings of the World Economic Forum in Davos