Early this year Muammar Gaddafi was elected the chairman of the African Union (AU) but his honourable position has done little to improve the lack of respect many of his peers have for him.
After seizing power in a coup in 1969, Gaddafi and his Libyan government have sponsored rebel movements in countries including Sudan and Chad, as well as being responsible for the death of 270 people in the bombing of Pan Am Flight 103 over Lockerbie, Scotland.
In recent years, his relations with many world leaders has been sour at best, due to his alleged disdain for human rights, coupled with his arrogant dismissal of any person who doesn’t agree with his opinions. He has even gone so far as to label himself the “dean of Arab rulers” and refer to members of certain foreign states as “stupid”.
Gaddafi’s most recent controversial statements, besides his elaborate and eccentric dress sense, must surely be his proposal to members of the AU at a recent meeting to form a central African Government. His idea of the formation of the “United States of Africa” was the source of much heated debate amongst heads of the 53 member states.
Although his idea sounds somewhat delusional and highly ambitious, it does raise a very important point – there must be benefits for all African countries if we can better work together and leverage off one another’s talents and resources to create a better life for all. In the long term, his idea may not be such a bad one. The potential economic benefits are exciting to think through – open borders, better access to strategically placed assets, new markets and more efficient production processes.
Potential benefits certainly do exist. Countries with a better educated workforce could use their knowledge and skills to utilise untapped resources of their neighbours. A recent example of this is the migration of skilled and experienced ‘refugee’ farmers from Zimbabwe to Zambia’s rich Luangwa valley, who can continue farming in a liberal political environment. Zambia alone has 43 million hectares of arable land, of which less than 15% is currently being farmed for lack of skills, machinery and supporting services. With freer movement of people and capital, these resources could be harnessed and used to uplift the entire continent.
Under a central African government one would assume that border controls and trade restrictions would be relaxed, allowing for easier and quicker movement of goods and services, at a reduced cost for both producer and consumer.
So too would a central government have greater bargaining power against the likes of China and other world trading partners, ensuring these superpowers don’t exploit their strong economic positions as much as they currently do.
Yet with all the apparent benefits, the challenges appear a bridge too far. The first and greatest challenge would be how Gaddafi would get 53 heads of state to relinquish their clutch on power and submit to one governor or governing country.
The diversity on the African continent is something to celebrate, yet when creating a central government, these differences in culture, religion, language, economic and foreign policies seem insurmountable. Many African countries such as Rwanda, Somalia and Sudan, cannot even get along within their own borders; how then will they be able to get along with those outside? The 2008 xenophobic attacks in townships across South Africa are evidence of the fear and protectionism that runs deep in people indigenous to a country.
Finally, who will govern the state? Surely Gaddafi will ensure his nomination is the first to be submitted. At present the AU chairman’s dream child will remain just that, with a United States of Africa highly unlikely to be attempted in the short to medium term. An effort to eat the elephant in one sitting is an impossible task. But all is not lost – eating the elephant piece by piece seems more feasible.
The Southern African Development Community (SADC), which includes countries such as South Africa, Namibia, Mauritius and Angola, has been a leader in attempting to pool the knowledge and resources of the region so that the whole is greater than the sum of the parts. Social, economic and political co-operation amongst member states is encouraged. So too have other regional organisations, such as the East African Community (EAC) and Economic Community of Central African States (ECCAS), been instrumental in their efforts to build a similar workable regional model.
The first step along the path to a single African state would be for regional bodies to become more effective in achieving their outcomes. Once these regional models are serving all interested parties, these regions can be pooled together to former larger unions. Then perhaps one day the last remaining unions will merge to form the US of Africa. Until then, there is a lot of work to do for the regional organisations.
For the South African investor this state of affairs may not be altogether bad. We have seen South African companies taking the advantage of being first movers into other African markets. Although the social conditions are tough, red tape is frustrating and markets are usually small and undeveloped, the base they are laying for themselves should ensure they have a strong foundation from which to grow while the competition are still trying to establish themselves. To boot, the current environment provides significant barriers to entry for new competitors. Most African markets are too small to attract international competitors and few African companies have either the scale or the funding to expand their cross-border operations. What is left is a select few (many South African) companies that have the vision, resources and risk appetite to establish themselves in Africa.
For their financial year 2008, The Standard Bank Group generated revenue from its African operations, excluding South Africa, in excess of R9.6bn, up 73% from R5.5bn in 2007. This amount represented only 11% of total group revenue, but the rate of growth is encouraging. Furthermore, the strategic importance of establishing a presence in Africa for the future is a benefit that is not yet quantifiable.
Similarly, companies like MTN, Massmart and Shoprite have dived in to the Dark Continent and have found that despite the tough trading and logistical challenges, growth from African operations consistently surprises on the upside. So too has Mr Price, one of South Africa’s favourite value clothing retailers, launched its franchise model as a strategy to expand into Africa.
The Johannesburg Stock Exchange (JSE) has also identified these growth opportunities, hence its vision to establish a Pan-African Stock Exchange. The JSE has launched its own African bourse, where African companies listed on other bourses can apply for a secondary listing, to increase their liquidity and tradability. Currently only Trustco Group Holdings Limited, a Namibian micro financier and insurer is registered on the bourse, but the JSE is hoping for the bourse to grow favourably once it gains traction and obtains critical mass.
These South African companies have taken the risk of expanding operations on the African continent. In many countries they are first or second to market, establishing their brands and operations and building some competitive advantage. With an African renaissance and ensuing economic growth on the long term horizon, these companies are well placed to benefit, whether we ever see the formation of The United States of Africa or not.