In recent years there has been a shift in the relationship between African economies and the outside world – from one of dependence to one of partnership.
This was highlighted by former British Prime Minister, Tony Blair, during his speech at the Investing in African Mining Indaba held in Cape Town last week.
“There is a move from what I would call mere ‘transactions’, to the idea of relationships,” he said. “Governments want something deeper and richer (as a relationship) with those coming to invest in their countries.”
He highlighted five principles which he argues govern mutually-beneficial, long-term relationships between African governments and foreign investors.
1. Infrastructure investment for mutual benefit
“The first principle of a new relationship, based on partnership, I think is cooperation between the investor and the country around the area of infrastructure for the greater benefit of the country as a whole.”
Blair highlighted the Simandou mining project in Guinea as an example, where a vast amount of capital is being invested in infrastructure – beyond just the mine – through collaboration between the government of Guinea, mining companies Rio Tinto and Chinalco, as well as the IFC.
“What the country will want to see is that the investment that is being made in the infrastructure is made in a way that, if possible, produces benefits not just for the company but also for the country and its wider infrastructure needs.
“Today there are large pools of capital that are looking to invest in infrastructure. The international financial institutions are eager to invest. There are sovereign funds from the outside looking for projects. I think there is a great opportunity for those mining companies making investments (and have to invest in infrastructure in order to be able to make their mines productive) to collaborate with government in ensuring the infrastructure is used for the general benefit of the economy and the good of the local people.”
2. Involve local businesses
“The second principle is the idea that there should be some benefit for local businesses and local producers when a major investment is made in a country,” Blair continued.
He added this should not just be the attitude and responsibility of the investor, but also that of the government of the country being invested in.
African governments should therefore take necessary measures to boost local productivity and reform education systems to improve skill levels, he highlighted. “So that companies aren’t left with the situation where they have obligations for local content, but frankly no realistic way of meeting that without detriment to their business.”
3. Eliminate corruption
Transparency and a lack of corruption on both sides is another principle of long-term, sustainable partnerships. According to Blair, it is becoming almost impossible for governments to access high-quality investment from western nations if their environments are corrupt. Therefore African governments in general are seeing the benefits of eradicating corruption.
“Sometimes it takes a long time for these issues to be eliminated from a system,” he continued. “But there is no doubt at all that any government coming to power in Africa today, which wants to do the best for their people, must ensure that everything that can be done, is done in order to make corruption impossible.”
4. Fair and predictable taxation
The issue of taxation also needs to be addressed.
For foreign companies it is important they pay their taxes to ensure a long-term relationship with the countries they are investing in. However, equally important to this relationship, is the predictability of the tax system, noted Blair.
“What I often say to the governments that I talk to and advise in Africa is, yes, [they] should expect companies to pay their fair share of tax. But [they also] need some predictability in the system around taxation otherwise [African governments] will deter the quality investors who need at least some form of predictability in order to be able to justify their investment for the long term.”
5. Construct the right business environment
The final principle required to ensure lasting, mutually-beneficial relationships between foreign companies and the countries they are investing in, is ensuring an enabling environment. However, Blair acknowledged this is often easier said than done, especially for governments of countries facing many major challenges.
For this reason, he argued constructing the right business and investment environment needs to be done through collaborations between companies and governments.
“If the relationship between investors and countries today is one which is more a partnership, it’s important that government listens to business, and business listens to government. And it’s important that together they try and construct the right environment into which people will come and invest in a country.”