African Technology ForumSM
The Information
Source for Science and Technology in
British Manufacturing Investment in Sub—Saharan
Africa:
Corporate Responses During Structural Adjustment
Muhonjia Khaminwa
There is always a moment of shock when I meet Africans from
other countries and discover that many of the products that I grew up with were
not the exclusive property of my Kenyan childhood. Omo, Lux, Lifebuoy, Milo,
and the Blue Band boy make up a continent-wide consumer consciousness. Recently
my Nigerian friend and I were exchanging advertising jingles we remembered. The
excitement of recognizing the tunes she was humming was laced by apprehension,
as jingle by jingle, my innate sense of the size of the local economy that
surrounded my childhood shrunk. The tubes of Ambi and funny shaped jars of
Satin Sheen were not homegrown, but rather were the products of
"transnational" investments in our economies. If the soap isn't
African, then what is?
A slim publication out of the Institute of Development
Studies at the University of Sussex, England, presents a survey of data on the
activities of these "transnationals" and other British companies in
English-speaking African countries. British Manufacturing Investment in
Sub-Saharan Africa: Corporate Responses During Structural Adjustment, by Paul
Bennell, addresses the issue of whether structural adjustments programs that
have been imposed on African countries over the past 15 years have indeed
achieved the desired response of increasing foreign investment and the
subsequent hoped for technology transfer from the industrialized countries.
Bennell gathered data from a variety of sources, including the annual Business
Monitor surveys of Overseas Transactions; the triennial Censuses of British
Overseas Assets (produced by the Central Statistical Office in the United
Kingdom); unpublished Central Statistical Office data on investments, earnings,
assets, and dividends; profit remittances for individual countries; and surveys
that he carried out in 1989 and 1994 of equity involvement in Anglophone
African countries by British companies in the manufacturing sector.
Bennell surveyed British manufacturing investment in
Botswana, the Gambia, Ghana, Kenya, Lesotho, Liberia, Malawi, Nigeria, Sierra
Leone, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe, taking into account
the different levels of governmental commitment to the Structural Adjustment
Program during the time period covered.
Unfortunately, much of the data is presented as tables,
requiring some mental gymnastics on the part of the reader to fully appreciate
the trends Bennell has detected. Graphs would have greatly accelerated the
reader's understanding. Chart 1 illustrates some of the information Bennell has
accumulated. The chart illustrates the relationship between the earnings and
investments of British manufacturing companies in Africa from 1978 to 1992. One
of the more surprising trends is that through the late 1980s when quality of
life indices were performing negatively in many Sub-Saharan countries, the
British companies were raking in pretty healthy profits. It is only when the
effects of SAP led to dramatic currency devaluation, thus making it difficult
for British companies to pull their profits out of the countries, that they
began to divest. This, despite the fact that they were continuing to post
healthy profits in the respective local currencies.
This raises the question of whether it is practical to
expect that foreign investment will have a major positive effect on developing
African economies. When questioned by Bennell, the companies listed foreign
exchange availability and ease of foreign exchange remittance as the overriding
factors governing their decisions to invest or divest from African economies.
Clearly and perhaps not-unexpectedly, British manufacturing companies are not
eager to reinvest their profits locally just for the sake of somehow improving
the economies. To quote Bennell:
Surprisingly, the share of net earnings from UK
manufacturing investments in Africa remitted each year to the UK was higher
than the global average between 1985 and 1990 . . . While UK companies have
been keen to reinvest very sizable proportions of their profits in North
America, Europe and Asia, investment opportunities in manufacturing have
generally been very limited in Africa and thus, given the option, most parent
companies would like to remit the bulk of subsidiary profits from the region.*
Recently, many developed countries have begun to link
financial aid and support to the progress African countries make in
democratizing their political systems. On the other hand, the manufacturing
companies ranked political stability and decreased corruption as the least
important factors governing their decisions to invest or divest from African
countries. As the case of China illustrates, part of the aid to African
countries from the West takes the form of indirect subsidies of Western
business activities in Africa. Yet those Western businesses do not consider
political reforms as central to their activities in Africa.
Bennell detects that with the exception of a few companies
that have a long history of involvement in Anglophone Africa, there has been a
general trend for British manufacturing companies to divest from their
interests in Africa. The divestment is governed by the availability of
investors who are willing to buy the parent company stakes. Bennell detects a
trend: In Zimbabwe, the white business class (local and increasingly South
African) does the buying, and in Kenya it is the Asian business class. Only in
Nigeria does Bennell suspect that there is local capacity to purchase the
equity of the withdrawing transnationals.
On Structural Adjustment Programs, Bennell concluded that
the magnitude of the disruption, positive or negative, that SAPs caused in the
economies of the surveyed countries was more of an indicator as to how British
manufacturing companies would behave in these economies. Generally, where
pursuing SAP led to sharp changes in the exchange rates and the availability of
foreign exchange, the British companies reduced or completely divested their
interests.
In today's world of global capital and global villages, it
is increasingly unfashionable to talk in terms of Africans owning and
developing business. The conventional wisdom being that any capital infusion
regardless of source will have a positive effect on what the Economist has
recently labeled "Africa's paralyzed economies." However, what
Bennell makes clear is that as long as there is economic and political
instability on the continent, foreign capital is in Africa solely for the
bottom line and will remain active in African economies only as long as their
remittable short-term profits in sterling can justify their presence to their
transnational shareholders.
* Paul Bennell
Institute of Development Studies at the University of Sussex, Brighton,
England. Working Paper 13, December 1994.
Go back to the main ATF site.
Webmaster: mtberhan@alum.mit.edu