Africa: How Much Common Ground?

Can the Western World fit in with African objectives? asks Arthur Gaitskell in an essay which concentrates on the human conditions of resource development in African countries. Mr. Gaitskell is member of the board of the Commonwealth Development Corporation, London. The following is extracted from a section of his essay dealing with private enterprise investment. Associated problems of education and public works are omitted here.

Before independence, expatriate private enterprise mainly concentrated on investment in what seemed the easiest profitable openings, and these fall into three categories. One category has been investment by and to meet the needs of the European minority. These, where they existed, had the large land holdings, their own capital and 'know-how," and the purchasing power. It was natural that their demands and accustomance to business methods should make a spearhead for private enterprise investment to utilize. A second main category for investment has been in extractive enterprise for export, whether in minerals or in plantation crops like tea and sisal. The third main category has been in the import and export trade and all the ancillary services associated with it. This category has, of course, been concerned with the profitable supply and purchase of African needs and products as well as European.

The most obvious characteristic of the situation after independence is that the categories of investment which expatriate private enterprise has so far favored are likely to be just those most exposed to latent hostility. However much, in their own search for profit, they may have contributed the major part of scarce revenues and introduced Africans to external trade, they are bound to appear to Africans as one of the main impediments to the concept of running one's own show.

If the situation outlined is generally true, fitting into it would seem to imply two main policy changes in the attitude of expatriate private investment. One involves a deliberate switch from relying chiefly on European to relying chiefly on African purchasing power and therefore deliberately encouraging development of the latter. The other involves acceptance of the fact that concentration on extractive and plantation industries is liable to be a major target for national antagonism, as also will be any monopoly of import/export trade and its ancillary services.

Recognition of these probabilities faces the private enterprise operator with a difficult choice of alternatives. Should he defend his existing interests as citadels and wait for the worst? Should he gradually liquidate his interests and switch his investment to safer, more profitable countries? Or can he achieve a new, mutually profitable arrangement with the new Africa?

Something of the same choice, however, also faces Africans. Should they take the attitude that government ought to undertake everything itself and that foreign private enterprise can never mean anything but exploitation? Or should they believe that foreign private enterprise could be a dynamic ally in raising the standard of living, providing scarce capital, continuing access to improvements in "know-how," and easier contacts with markets? But if they took the latter view, how could they control foreign private enterprise and how gradually build up their own private and public enterprise until these are so dominant in the economy that dislike of foreign investment disappears?

In this situation, a number of examples are evident in many parts of the world which illustrate how expatriate private and public enterprise is trying to adjust itself to fit in with local objectives and where local governments are trying to modify their approach in order to get the benefit of external help. One of the commonest examples is the joint capital structure system. This may take the form of arranging for part of the capital to be subscribed by the local government, or local development corporation, with the idea of giving local people a feeling that it is as much their show as that of outsiders.

One of the great problems in these examples is that of management control. Expatriate capital is reluctant to concede majority holding for fear that decisions may be forced on them which are not businesslike. On their side, the locals often fear that if they concede majority control the expatriate partner will concentrate entirely on profit to the complete exclusion of social and political objectives. Being very sensitive to equality, they also fear that they may be treated in an offhand manner as if explanation of the accounts and working of the undertaking were too difficult for them to fathom.

There is clearly no uniform solution to these problems in an atmosphere so dependent on psychology, but two points seem valid. The first is that no one gains anything from an undertaking which is commercially a failure, a point increasingly realized as capital gets shorter and managerial ability more appreciated. The second is that remoteness on either side is likely to be worse in breeding suspicion than genuine close contact in encouraging dissension.

Another difficulty about the joint capital structure is that often the locality cannot find the money to put up its share of the capital. One of the most remarkable instances of overcoming this difficulty was that of the Williamson diamond mine in Tanganyika. In this case the Anglo-American corporation not merely agreed to a 50:50 capital structure with the government, management being conceded to the corporation, but actually loaned to the government the capital to subscribe it's share and repay out of its subsequent profit. It may not be easy to imitate this example, but rather than start enterprises all over again entirely with foreign capital it would seem worth considering whether organizations like the International Bank could not specialize more in loaning their local capital subscription to local governments, particularly if the enterprise is in partnership with some firm which has business ability and market contacts.

Another form of local capital participation is that of share subscriptions offered not merely to the local government but to local private subscribers. People are too poor in most developing countries for much money to be raised at first in this way. But where it can be done it often gives a much closer sense of association than does government subscription. Sometimes more local private capital is available than is generally believed, as was demonstrated in Latin America by the remarkable initiative of the Kaiser Company in deliberately offering shares for sale by touring the rural market towns. The same company now makes a principle of accepting only minority shareholding itself in undertakings which it stimulates in developing countries.

An outstanding example of an expatriate company encouraging local industrial development is that of the Sears Roebuck Company in Mexico. Handicapped by shortage of foreign exchange from importing from traditional sources the goods needed for its stores, this company practiced import substitution and encouraged the promotion of local industries to meet its needs from local products.

It is not so easy to see how expatriate capital and knowledge can be applied to agriculture as to industry, yet industrial development itself is going to be dependent on flourishing agriculture. Expatriate capital can finance major works like dams, and expatriate contracting firms can construct them and can carry out ecological and soil surveys, but the real problem is getting the land use improved.

There is, however, one aspect in which expatriate capital can help. That is in the creation of nucleus plantations having as their objective the sparking off of efficient small-holder cash crop products. The nucleus plantation in such a concept forms a focus of commercially managed business, a training ground for both peasant settlers and extension staff supervisors, and a processing center. Projects of this kind are already being run in different parts of the world for crops like sugar, palm oil, rubber, and tea, where the whole success depends on introduction of the best stock and the best methods of production. The antipathy to foreign plantations could undoubtedly be reduced if they could be viewed as valuable allies, in this respect, to local producers' co-operatives.

If the Western World is going to fit in with developing countries' aims it is essential to ask ourselves whether there is any need for permanency. There must be instances on innumerable occasions in our own business life when an enterprise has been transferred from one collection of shareholders to another. It is usually a matter of trying to arrange fair terms, and after the deal the departing capital is employed in other directions. It is not impossible for such terms to be thought out in advance and, with the help of accountants and estimates, for the terms of transfer of assets to be laid down. It is not impossible to forecast the period needed to get a reasonable return on money invested and repayment of the capital. Nor is the risk of being wrong in such forecasts so obviously greater than the risk of nationalization and the risk of insecurity of government when issues like this are left uncertain. It would seem well worth investigation both in new and existing expatriate enterprises just how important permanence is. A deliberate program for termination over a period would avoid also the fall-off in efficiency which has so often resulted when an undertaking has been summarily nationalized. Apart from major undertakings which may merit such an arrangement with the local government, an alternative method would be to convert the initial foreign capital to local capital by selling shares to the local public over a period and to reinvest the monies paid in other enterprises in the country.