Corporate Capture in Southern African Infrastructure Development | by Michelle Pressend

by Oct 15, 2014Magazine

Attracting foreign direct investment (FDI) continues to be seen as the core pathway for southern Africa and the African region as a whole to meet economic growth aspirations. African natural resources are in demand globally and foreign investment projects are on the increase. Key investment sectors include the extractive industries (mining, oil, gas and timber), agriculture and services (finance, ICT and infrastructure).

According to the World Investment Report 2013, FDI inflows to Africa grew to $50 billion in 2012, a rise of five per cent over the previous year. However, all regions did not receive a fair share of the pie, with overall increase in FDI to North Africa, Central Africa and East Africa, and declines in west Africa and southern Africa. Foreign direct investment flows plunged from $8.7 billion in 2011 to $5.4 billion in 2012 in southern Africa, due to fallen FDI flows in Angola and South Africa. However, FDI flows in Mozambique have doubled to the tune of $5.2 billion, due to interests in huge offshore gas deposits.

At the same time, however, while FDI inflows are increasing, capital flight and outflows are also on the rise. The African Development Bank and Global Financial Integrity Joint Report released in 2013 on illicit financial flows reveals that Africa suffered a loss of between US$ 597 billion and US$ 1.4 trillion in net outflows between 1980 and 2009. South Africa is ranked second after Nigeria, which hosted the largest cumulative illicit outflow for the same period.

According to the report, Africa is a “net creditor to the rest of the world”. These enormous financial losses could be being used to settle African external debt using surpluses that could also be used to meet African people’s socio-economic needs.

This is a period of laissez- faire, laissez passer globalisation, in which the power of transnational corporations has facilitated an architecture through free trade, investment agreements and financial instruments that allows greater rights for investors and the creation of complex global networks to siphon profits to secrecy jurisdictions. Surely African governments need to be looking at alternative and more sustainable means of development.

However, this is not the case. The new scramble for Africa is following a familiar extractive development model that will keep African countries locked in to extracting, moving and exporting raw materials. But this time, it is going beyond the extraction of minerals: it now includes land, water, seed diversity, fisheries, gas and other natural resources. This form of extraction is being exacerbated by large-scale corporate control, ownership and capture, giving TNCs immense rights and ownership through investment agreements, long term-leases of land and lucrative incentives. In his paper “State of Extraction: The new scramble for Africa”, David Fig notes that: “Africa has become the site of many large-scale land and water acquisition transactions often referred to as ‘land grabbing’.”

Furthermore, Fig says, “there is much more complicity between the state and global capital”. Governments appear to be in a “race to the bottom” to attract investments, and are entering into investment agreements (bilateral investment treaties and direct agreements with investors) that have become vehicles for the further privatisation of public goods. These agreements provide a legal framework for dispossessing communities from access to land, water and other natural resources.

In 2012, African heads of state adopted the Programme for Infrastructure Development in Africa (PIDA) as a strategic framework to address the continent’s infrastructure deficit. It is no coincidence that around the same time the World Bank launched its One Billion US Dollar Map, which locates all Africa’s natural resources. PIDA has prioritised large cross-border infrastructure projects that integrate energy, transportation, water and ICT development on a continental scale.

PIDA’s projects are estimated at US$ 360 billion up to 2040. Lack of access to reliable modern electricity is identified as a major infrastructure challenge in Africa. Only 39% of Africa’s population had access to electricity in 2009.

In the southern African region, more than 80 percent of the population is still dependent on biomass for energy – particularly wood, cow dung and coal. Women and children in rural areas bear the brunt of a general lack of access to modern, safe and affordable energy. They have to collect wood and search for coal in and around operating and abandoned mines.

Given the energy need, it no surprise that 60% of PIDA expenditure, or some US$ 40 billion) will be allocated to energy. However the nature of the energy infrastructure and the beneficiaries of this infrastructure raise many concerns, particularly as regards their funding and oversight and management mechanisms.

A recent report on PIDA shows that a number of the energy projects are large-scale hydro-dam projects and transmission lines that will interconnect the power pools to meet the projected increase in demand. In southern Africa, the major energy investment projects are:

North-South Power Transmission Corridor, 8,000 km line from Egypt through Sudan, South Sudan, Ethiopia, Kenya, Malawi, Mozambique, Zambia, Zimbabwe to South Africa

Mphanda-Nkuwa Dam in Mozambique

Lesotho HWP Phase II – Hydropower component

Another large-scale project, the Inga Hydro–Phase III in the Democratic Republic of Congo (DRC), is also in the pipeline.

The report referred to above lists a number concerns regarding this focus on large scale hydro-dams, both in terms of access to energy that it will supposedly provide and in relation to environmental consequences. Water flow unpredictability due to climate change is a particular concern. An outcry by the Congolese people has led the World Bank to suspend the financing of Inga III. “The proposed project would generate power primarily for mining companies and the South African market, but not for the more than 90 percent of the DRC population that have no access to the electricity,” the report says.

Aside from the nature of the proposed energy infrastructure, the financing, ownership and control of these projects are major points of contention. Public Private Partnerships (PPPs) are the primary mechanisms for funding such large-scale infrastructure projects. However, PPPs have a major impact on affordability and access for people who cannot pay market prices, because of the involvement of private sector organisations whose main motivation is profit. Essentially they mean that public resources are used to finance private investments. Moreover, they lock governments into agreements by which they can be held liable if investors’ “rights” are violated.

The nature, scale and financing instruments of these plans for large-scale infrastructural development need to be interrogated in outline and in detail. A common theme is that they have not involved the participation of communities regarding their needs; the types of infrastructure proposed and their financing are not people-centred. Big questions remain. Who will these infrastructure plans really serve, and at what cost to humanity and the environment?

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