Foreign Portfolio Investors Are Plundering Africa

                                                                                                           (pix: mgafrica)

By Farouk Martins Aresa
If you have your own resources like gold, diamond or oil that brings steady income, why gamble for leverage? Businesses have a good reason for using Other People’s Money OPM to establish and split the profit with risk takers on the long run. If the business fails, owner of the business is protected from personal liability and shareholders also absorbed a loss. In case of governments, Africa’s liability multiplies since countries do not fold, even when they defaults on odious loans.

It is well known that the advantage of stocks and bonds as part of financial portfolio has its gain in long-term profits. This is where capitals are raised for most projects with the hope that the project would produce gain for the investors on the long run. The only beneficiaries of short-term trade, acquisition and corporate raiders are funds managers and black knights in hostile take-over. They now descend on African countries, to make quick cash or profit in Nigeria.

Politicians send loot out while our domiciliary foreign cash account gamble in devalued naira. Dollar account and loot cannot enhance local development. Instead of relying on whatever we have by making sure our foreign reserve is not drained by foreign portfolio investors, we place faith on FPI intention. It’s pennywise pound-foolish to stake foreign income as collateral loan.

Unfortunately, each time these foreign portfolio investment fund managers pull their money out of stocks and bonds at a convenient and opportune time, the government of the day is blamed for bad economic policy driving foreign investors away. In the first place, they are not in our countries for local interest and their local partners furnish them inside information on our policies. Foreign ratting agencies look after the interest of their partners, not local beneficiaries.

Foreign portfolio investors have gravitated towards funds manager seeking their interest for maximum profits around the world. While this is a legitimate pursuit to increase shareholders’ return on investment, it devastates poor African countries trying to get on their feet by seeking long-term investments for infrastructures and capital projects. It could be a win-win situation if the foreign investors do not seek short-term gain at the expense of their hosts.

Government investment banks have handled most of the capital projects and infrastructure in Africa with low interest loan from international bodies like International Monetary Fund and World Bank. Enormous projects like Ajaokuta Steel that needed foreign technical assistance and materials became obsolete before production. Smaller projects with “confidence” that FPI were expected to invest in Nigeria resulted in loses of N304bn to foreign divestment in six months

Surprisingly, Innoson products have low patronage. For its population Nigeria has one of the lowest auto manufacturing activities in Africa. Nigeria must plan and implement auto policy for foreign investors to start from scratch. Morocco, with only two assembly plants, is producing 460,000 units and Egypt, which has 26 assembly plants currently boasts of 325, 000 production capacity, while Nigeria with an allegedly 36 assembly plants only has 15, 000 production capacity. See Auto Industry

African countries must trade more with one another to get long-term benefits. It used to be cheaper to fly from West Africa to London than to fly from West Africa to East or South Africa. Well, right now we do more businesses outside Africa than we do within Africa. The reason is simple, our needs and wants have been diverted from our home to Europe and United States. So we must buy more and trade more outside Africa.

Our leaders are quite aware of this and they have formed regional economic bodies like ECOWA and established national airlines that fly across the Continent. With so many airports within our countries, we have many local airlines. So we have made progress, though not enough. Many of our airlines are still unreliable and not enough, plagued by maintenance problems. Even when they are cheaper, we still fly foreign airlines out of Africa.

Maintenance, service and material of equipment are the source of continuous money making avenues for foreign companies. Apart from bringing their foreign technicians, the codes to open or operate their equipment are easily controlled from their American or British based plants or offices. So, when African countries buy top grade medical and manufacturing equipment, local technicians and operators may not be able to service them when and if due without paying fees.

African confidence in local trade must go beyond buying and selling, imported ready-mades and burst into manufacturing finished products admired and patronized at home. It is catching fire in Nigeria in view of the arguments for and against devaluation of naira. The fear is, this is not the first time. We went through series of Operation Feed Yourself to Buy Africa but discovery of oil as easy foreign income destroyed the incentive to be more productive.

Some Asian countries like Indonesia, South Korea and Japan have tailored foreign investment to their cultural values mutually to the benefit of both foreign investors and local entrepreneurs. In cases where foreign franchises have been accepted, they adapt the taste and culture of the host countries. A good example is in the food industries where local menu are different from what one would see in American or British market.

Most African countries want exactly the foreign taste, style and menu deriding local culture. It should be noted that those businesses that have copied foreign types but diversified into local cultures stood a better chance of success because they save a great deal of money in franchise fees and they do not have to depend on foreign goods as their raw materials. Anyone accepting Coca-Cola franchise must accept their imported formula of raw material: African sugar and cola!

We should not be discussing this after many years of political without economic independence. Foreign Investment must help budding industries not paper profit draining our foreign reserves.