AfricaFocus (Washington, DC)

12 May 2014

Africa: Report Highlights Resource Plunder

analysis

Editor's Note

"Take the profit out of plunder: Africa's resources should be sustainably managed for the benefit of Africa's peoples. National and regional action alone will not be enough.

The international community must develop multilateral systems that prevent the plunder of Africa's resources [of fisheries and forests]." - Africa Progress Panel, 2014

The African Progress Panel, a body headed by former UN SecretaryGeneral Kofi Annan, may seem an unlikely group to be using words such as "plunder" to characterize Africa's economic challenges.

But its reports, including last year's report with a key focus on mining industries and capital flows out of Africa, indicate that such structural critiques are gaining ground not only among radical critics but also in more centrist circles. Inequality and even plunder are topics for debate that cannot be avoided.

This AfricaFocus Bulletin contains excerpts from the summary of the 2014 Africa Progress Panel report, released on May 8.

This year's report focuses in particular on the sectors of fisheries and forests, stressing that the failure to manage these resources increases inequality and drains wealth from the continent.

In more general terms, it stresses the need to invest in social protection programs and that this in turn can help supply more stability for Africa's small farmers who are essential to broad-based economic advances.

The full report is available on the panel's website (http://africaprogresspanel.org), as are reports from previous years.

The 2012 report, excerpted in an earlier AfricaFocus (http://www.africafocus.org/docs12/app1205.php), focused on jobs and equity. That report stressed that "Countries across Africa are becoming richer but whole sections of society are being left behind."

For previous AfricaFocus Bulletins on economic issues, visit http://www.africafocus.org/econexp.php On illicit capital flows and related questions in particular, see http://www.africafocus.org/debtexp.php

Africa Progress Report 2014: Grain, Fish, Money

Summary

"Africa is a land of opportunity ... business opportunities are there, growth is there and the population is there." - President Macky Sall, Senegal, January 2014

"Families have lived off fish for generations ... but fish stocks have been reduced. Our revenues have come down. We used to be able to save a bit for our children's education or to fix our boats but it has now become harder to make ends meet." Issa Fall, Fisherman Committee, Soumbedioune, Senegal, January 2014

These two views from one country in Africa tell very different stories. President Macky Sall was speaking about his government's "Emergent Senegal" investment plan - a multibillion-dollar strategy for transforming the country's infrastructure.

Ten years ago Senegal was still in the grip of a debt crisis. Now it is able to sell sovereign debt on eurobond markets. The economy is gaining strength, exports are growing and Senegal is emerging as a regional hub for transport, logistics and tourism.

Then there is the other Senegal - the Senegal of Issa Fall. Along with tens of thousands of artisanal fishers who ply their trade from pirogues, canoes built by hand from local timber, his livelihood is under threat. The ocean off West Africa is one of the world's richest fishing grounds.

Yet catches are declining, along with the income they generate. The reason: illegal, unreported and unregulated fishing by commercial fleets from other countries.

Senegal lacks the capacity to monitor the activities of these fleets. Until recently, it also lacked the political will to tackle the problem. Leaders and business interests actively colluded in, and benefited from, the illegal sale of permits to foreign fleets.

Senegal's experience is a microcosm of a wider story. For more than a decade, Africa's economies have been doing well, according to graphs that chart the growth of GDP, exports and foreign investment.

The experience of Africa's people has been more mixed. Viewed from the rural areas and informal settlements that are home to most Africans, the economic recovery looks less impressive. Some - like the artisanal fishermen of West Africa - have been pushed to the brink of destitution.

For others, growth has brought extraordinary wealth. Africa is now home to some of the world's fastest-growing markets for luxury goods - and signs of the new prosperity are increasingly visible alongside reminders of the old problem of poverty.

Africa stands at a crossroads. Economic growth has taken root across much of the region. Exports are booming, foreign investment is on the rise and dependence on aid is declining.

Governance reforms are transforming the political landscape. Democracy, transparency and accountability have given Africa's citizens a greater voice in decisions that affect their lives.

These are encouraging developments. Yet the progress in reducing poverty, improving people's lives and putting in place the foundations for more inclusive and sustainable growth has been less impressive.

Governments have failed to convert the wealth created by economic growth into the opportunities that all Africans can exploit to build a better future. The time has come to set a course towards more inclusive growth and fairer societies.

This year's Africa Progress Report addresses some of the central challenges facing Africa's governments. We share the view that there is much cause for optimism.

Demography, globalization, new technologies and changes in the environment for business are combining to create opportunities for development that were absent before the economic recovery.

However, optimism should not give way to the exuberance now on display in some quarters. Governments urgently need to make sure that economic growth doesn't just create wealth for some, but improves wellbeing for the majority.

Above all, that means strengthening the focus on Africa's greatest and most productive assets, the region's farms and fisheries. This report calls for more effective protection, management and mobilization of the continent's vast ocean and forest resources.

This protection is needed to support transformative growth. The achievements of the past decade and a half should not be understated. Economic growth has increased average incomes by around one-third. On the current growth trajectory, incomes will double over the next 22 years.

Once synonymous with macroeconomic mismanagement and economic stagnation, Africa now hosts some of the world's fastest-growing economies.

When it comes to growth, Ethiopia rivals China, and Zambia outpaces India. Contrary to a widespread misperception, there is more to the growth record than oil and minerals - and more than exports and foreign investment. African business groups have emerged as a powerful force for change in their own right, in areas such as banking, agro-processing, telecommunications and construction.

For the first time in a generation, poverty is falling - but it is falling far too slowly. The benefits of growth are trickling down to Africa's poor but at a desperately slow pace. Next year, African governments will join the wider international community in adopting post-2015 international development goals.

One of those goals will be the eradication of poverty by 2030. On current trends, Africa will miss that goal by a wide margin. Why is growth reducing poverty so slowly? Partly because Africa's poor are very poor: those below the poverty line of US$1.25 a day live on an average of just 70 cents a day.

And partly because high levels of initial inequality mean that it takes a lot of growth to reduce poverty even by a little.

Raising the growth trajectory by 2 percentage points per capita and modest redistribution in favour of the poor would get Africa within touching distance of eradicating poverty by 2030.

Well-designed social protection programmes could play a vital role by protecting vulnerable people against the risks that come with droughts, illness and other shocks.

By transferring cash, they can also raise income levels. Experience in other regions - especially Latin America - demonstrates that social protection can simultaneously help to reduce poverty and inequality, and boost growth in agriculture.

Yet Africa underinvests in this vital area - and few governments have developed integrated programmes. By contrast, they spend around 3 per cent of GDP on energy subsidies, most of which go to the rich - three times the level of support provided for social protection. It is hard to imagine a more misplaced set of priorities.

If Africa is to develop a more dynamic and inclusive pattern of growth, there is no alternative to a strengthened focus on agriculture.

Sub-Saharan Africa is a region of smallholder farmers. Some people mistakenly see that as a source of weakness and inefficiency. We see it as a strength and potential source of growth.

Africa's farmers have an unrivalled capacity for resilience and innovation. Operating with no fertilizer, pesticide or irrigation on fragile soils in rain-fed areas, usually with little more than a hoe, they have suffered from a combination of neglect and disastrously misplaced development strategies.

Few constituencies can have received more bad advice from development partners and governments than African farmers. And few of the world's farmers are as poorly served by infrastructure, financial systems, scientific innovation or access to markets.

The results are reflected in low levels of productivity: cereals yields are well under half the world average.

Agriculture remains the Achilles' heel of Africa's development success story. Low levels of productivity trap millions of farmers in poverty, act as a brake on growth, and weaken links between the farm and non-farm economy - links that were crucial to development breakthroughs in Bangladesh, India and Vietnam. Low productivity has another consequence that has received far too little attention.

Africa's farmers could feed rapidly growing urban populations and generate exports to meet demand in global markets. However, the region is increasingly and, in our view, dangerously dependent on imports. African countries spent US$35 billion on food imports (excluding fish) in 2011.

The share accounted for by intra-African trade: less than 5 per cent. If Africa's farmers increased their productivity and substituted these imports with their own produce, this would provide a powerful impetus to reducing poverty, enhancing food and nutrition security, and supporting a more inclusive pattern of growth.

It is time for African governments and the wider international community to initiate a uniquely African green revolution. We emphasize the word unique.

Copying South Asia's experience and retracing the steps of other regions is not a viable strategy. Agricultural conditions in Africa are different.

Yet Africa desperately needs the scientific innovations in drought-resistant seeds, in higher-yielding varieties and in water use, fertilizer and pesticide that helped to transform agriculture in other regions.

Returns on investments in these key areas will be diminished if deeprooted policy failures are not tackled. These range from exorbitant transport costs for farm produce to underinvestment in storage and marketing infrastructure and barriers to intraregional trade.

African farmers also need help to cope with the effects of climate change, which is very likely to lead to above-average warming in Africa over the course of the 21st century, reducing the yields of major cereal crops. Yields of maize, a major regional food crop, are expected to fall by around 22 per cent.

The fifth assessment report of the Intergovernmental Panel on Climate Change identifies Southern Africa, West Africa and the Sahel as regions facing acute known risks.

However, no region will be unaffected. Even modest changes in the timing and intensity of rainfall, in the frequency and duration of droughts, and surface temperature can have profoundly damaging consequences for production, poverty and nutrition.

All of which makes the international community's failure to provide adequate adaptation financing indefensible. Having promised much, rich countries have provided little new and additional climate adaptation financing. Commitments through climate funds are less than US$700 million - and spending is even lower.

This is unjust and short-sighted. It is unjust because Africa's farmers are being left to cope with a climate crisis they did not create.

Adaptation spending in Africa is dwarfed by the multibillion-dollar investments being undertaken in rich countries. And underinvestment in adaptation is short-sighted because early investments could boost growth, enhance food security and reduce climate risks.

Harnessing Africa's resources for African development is another priority. In last year's report, Equity in Extractives, we highlighted the damaging consequences of tax evasion and loss of revenue through undervaluation of mineral resource assets. This year we turn our attention to renewable resources, focusing on fisheries and logging.

There are some striking parallels with tax evasion. In each case, Africa is being integrated through trade into markets characterized by high levels of illegal and unregulated activity.

In each case resources that should be used for investment in Africa are being plundered through the activities of local elites and foreign investors. And in each case African governments and the wider international community are failing to put in place the multilateral rules needed to combat what is a global collective action problem.

The social, economic and human consequences are devastating. On a conservative estimate, illegal and unregulated fishing costs West Africa alone US$1.3 billion a year.

The livelihoods of artisanal fishing people are being destroyed, Africa is losing a vital source of protein and nutrition, and opportunities to enter higher valueadded areas of world trade are being lost.

Unregistered industrial trawlers and ports at which illegal catches are unloaded are the economic equivalent of mining companies evading taxes and offshore tax havens.

The underlying problems are widely recognized. Yet international action to solve those problems has relied on voluntary codes of conduct that are often widely ignored. The same is true of logging activity, with the forests of West and Central Africa established as hot-spots for the plunder of timber resources.

Placing Africa on a transformative pathway will require investing in inclusive growth. Infrastructure is one priority. No region has lessdeveloped road networks and energy systems than Africa. Changing this picture will require significant up-front capital spending, prefaced by the development of bankable proposals and the emergence of new business models.

The current financing gap has been estimated at around US$48 billion. Much emphasis has been placed on the development of "new and innovative" financing to close that gap, including the use of aid to attract private investment.

Unfortunately, the delivery of real finance has been less impressive than the hype surrounding the relentless proliferation of new initiatives. Part of the problem is a failure to invest sufficiently in building the capacity of African governments to develop infrastructure projects.

Africa's financial systems are another constraint on growth. No region has a lower level of access to financial services. Only one in five Africans have any form of account at a formal financial institution, with the poor, rural dwellers and women facing the greatest disadvantage.

Such financial exclusion undermines opportunities for reducing poverty and boosting growth that benefits all. Lacking access to insurance, Africa's farmers have to put their meagre savings into contingency funds to deal with emergencies, rather than investing them in boosting productivity. Similarly, lacking access to loans and saving institutions, they are often unable to respond to market opportunities.

Other weaknesses in domestic financing have to be addressed as a matter of urgency. At one level, the regional financing environment has been transformed.

Ten years ago, countries across Africa were still emerging from the Heavily Indebted Poor Countries initiative. Today, many of the same countries have entered sovereign bond markets. But Africa cannot meet its financing needs in infrastructure and skills development through aid and commercial market debt financing alone.

That is why there is no substitute for domestic financing. Unfortunately, economic growth has done little to increase either the rate of savings or the proportion of GDP that is collected in domestic tax revenues - outcomes that point to the need for institutional reforms.

Recommendations

In this report we document some of the great development challenges facing Africa. Meeting these challenges will not be easy. Yet Africa's political leaders, entrepreneurs, farmers and civil society have an unparalleled opportunity to transform their countries.

If that opportunity is seized, this could be the generation that will be lauded throughout history for eradicating poverty. We set out in this report a broad-based agenda for change. At the heart of that agenda are five core principles, for each of which we identify the necessary practical action.

Share the wealth

Inclusive growth and expanded opportunity are essential to eradicate poverty. African governments should set equity targets linked to the post-2015 development goals.

These targets would focus on narrowing gaps in opportunity. For example, they could include halving over five years the disparities in school attendance, child survival and access to basic services linked to rural-urban divides, wealth gaps and gender divisions.

Strengthening the commitment to inclusive growth demands an expansion of social protection, including cash transfers to the poor. Governments should be diverting some of the 3 per cent of regional GDP they now devote to energy subsidies into welldesigned social protection programmes.

Invest in Africa's unique green revolution

African governments, the private sector and the global community must work together to invest in Africa's unique green revolution.

It is possible to double Africa's agricultural productivity within five years. As outlined by the African Union, African countries can end hunger and malnutrition and become major players in global food markets.

It is also vital to unleash the potential of sustainable agriculture and aquaculture to provide food, jobs and export earnings. Some of the requirements for achieving a breakthrough in agriculture are financial.

Now is the time for governments to act on their pledge to spend at least 10 per cent of budget resources on agriculture. But governments also have to create the right market conditions.

An immediate priority is the promotion of import substitution to cut Africa's US$35 billion food import bill. This will require measures to cut tariffs and non-tariff barriers to regional trade, eliminate transport cartels, and develop marketing infrastructure.

Take the profit out of plunder

Africa's resources should be sustainably managed for the benefit of Africa's peoples. National and regional action alone will not be enough. The international community must develop multilateral systems that prevent the plunder of Africa's resources.

Fisheries: The global community must act collectively to unleash a blue revolution for ocean management. To stop the plunder of African fishery resources, all governments should ratify and implement the 2009 Port State Measures Agreement to tackle illegal unreported and unregulated (IUU) fishing, and establish a global register of fishing vessels.

African governments should increase fines on IUU vessels, support artisanal fishing, increase transparency, and provide full disclosure of the terms on which commercial fishing permits are issued.

Forests: All commercial logging concession contracts should be subject to full disclosure, along with the beneficial ownership structures of the companies involved. Concessions should be provided with the informed consent of the communities involved, based on a clear and accurate representation of potential costs and benefits.

Close the twin deficit in infrastructure and inclusive finance

African governments must close the twin deficit in infrastructure and inclusive finance. The lack of infrastructure is a bottleneck on growth and opportunity.

The same is true of finance. Regional cooperation on energy and transport is vital in order to achieve economies of scale in infrastructure projects.

African governments can also support the development of mobile banking and e-commerce to overcome financial exclusion, building on successes such as M-PESA in Kenya. Development finance institutions should work with the private sector to foster more balanced perceptions of risk.

Make tax and finance more fair and transparent

Strengthened domestic resource mobilization holds the key to financing for inclusive growth, with African governments investing in efficient and equitable tax collection.

Governments should publish in a transparent manner all tax exemptions that are granted to corporate entities, both domestic and foreign.

The estimated cost of the tax exemption should be made public, along with the reasons for the exemption and the principle beneficiaries.

The international community must step up efforts to combat tax evasion. Multinational corporations operating in Africa should fully disclose their financial operations and tax payments.

Building on current initiatives, governments should accelerate the automatic exchange of tax information and build Africa's capacity to benefit from this information.

All governments, including those of financially secretive jurisdictions, should establish public registries of beneficial ownership of companies and trusts. Multinational corporations can lead the way by publishing a full list of their subsidiaries, as well as information on global revenues, profits and taxes paid across different jurisdictions.

The international community should also deliver on its aid pledge - and go one step further by cutting the cost of remittances.

The G8 should work with African governments to cut the cost of remittance transfers to a maximum of 5 per cent. That means curtailing restrictive business practices on the part of money transfer operators, strengthening competition, and creating incentives for the development of low-fee mobile remittance payments.

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