The current BRICS’ company Africa investment model may boost growth, but it does not reduce poverty significantly, nor create mass jobs or distribute wealth widely. Furthermore, the BRICS’ company Africa investment model does not transfer technology, upgrade African countries’ skills bases or create new African businesses.
In fact, the current BRICS’ company Africa investment model creates high African growth rates, creates wealth for only small African elites, but creates mass jobs and large incomes for BRICS countries at a cheap rate.
South Africa must push for a new BRICS’ company Africa investment model, which would encourage a higher quality economic growth in African countries, which could create more African businesses, distribute wealth more widely and foster more employment.
The current BRICS’ company Africa investment model is based on BRICS companies buying mines or farms and setting up factories in Africa, using unskilled African labour, producing at low cost and with relatively low investments.
BRICS companies extract African raw materials, or make low-cost textiles or cement, and export these back to BRICS countries to be turned into refined products, and then sell these onwards to emerging or industrial country markets or back to African countries at higher prices. This BRICS’ company Africa investment model does not require BRICS companies to invest massively in African infrastructure.
Furthermore, the investment model often comes with massive environmental destruction, social disruption and ignorance of basic workplace and human rights. There is often little consultation of local communities.
Low skills, low wages
In some African countries with more advanced infrastructure, skills and resource base, BRICS companies do produce semi-finished goods, rather than just raw materials and export these from African countries.
In such cases, producing semi-finished goods are still based on low-skills, low wages and low costs, and low infrastructure investment, although it may bring more jobs for African countries, than only extracting and exporting raw materials.
China in its rise to be a global manufacturing giant, initially produced low-cost, unskilled labour, products for industrial country companies, and then over time moved up the value-chain, producing itself more value-added, more advanced products, as it mastered new technology, increased the country’s skills levels and income.
Currently, many countries in South-East Asia, such as Vietnam, Indonesia and Cambodia, have taken China’s place, producing low-cost, unskilled labour for Chinese companies.
Most African countries have been unable to upgrade from this BRICS investment model, based on low-cost, unskilled labour and low investment, to produce more value-added and advanced products.
BRICS companies would invest in African countries, and the continent becomes a factory for BRICS countries, getting its masses of unskilled unemployed to work for BRICS company-owned mines, factories and farms at low wages, at low costs and low capital investments.
The BRICS investment model has turned Africa into a globally positive investment story, rewriting Africa’s narrative into one of new opportunities, rather than the old narrative of the continent being a burden, waiting for handouts from the West and former colonial powers.
However, African countries appear to be remain stuck in the low-cost, unskilled labour, low wage BRICS-Africa investment model; unable to move up the production value chain, producing more value-added products and services. The current dominant BRICS companies’ investment model has fitted well, with Africa’s present lack of interconnected infrastructure.
BRICS companies investing in Africa according to this investment model have often invested in African infrastructure, which takes their investment products from the source of production to the coast or an airport for export back to the BRICS countries. The infrastructure under such circumstances is often not interconnected with other growth areas or markets areas where industrial development happens, or is planned for, to augment economic development more broadly.
Furthermore, this BRICS investment model has brought high growth rates, but of low quality, with fewer jobs being created and without significantly reducing poverty or inequality.
It has seen BRICS companies extracting the continent’s raw materials and exporting them to their own countries, and finishing them into higher value products and often selling them back at higher prices. Extracting raw materials does not create mass jobs, and creates wealth to only a few people.
South Africa must push for a more sustainable BRICS-Africa investment model. In such a new model, African countries could themselves identify investment opportunities, according to a development plan. Individual African countries will have to put together realistic industrial plans, which set out how they are going to refine raw materials, develop new industries and acquire new technologies and set targets for these to be achieved.
Once African countries have an industrial plan, they can then invite BRICS companies to invest. They must then compel BRICS companies to partner with existing local companies to develop the investment opportunities.
If there are existing local African companies, these companies could secure equity partnership in the BRICS companies. In these equity partnerships, there should be technology, management and skills transfer as a requirement for the transaction.
BRICS companies must refine the African raw materials at the African source and then export the semi- or fully-refined products to global markets. This way, more jobs will be created in Africa than currently, poverty will be more widely reduced and wealth would be spread more widely.
If say, there are no existing African companies, BRICS companies could be compelled to bring small local companies and farmers into the supply chains of BRICS companies, in similar ways for example, small and medium enterprises (SMEs) in Taiwan or South Korea produced the parts or products for large Taiwanese or South Korean conglomerates.
BRICS companies could then be required to train African suppliers to build parts of products or whole products, which go as inputs into the BRICS companies’ manufactured produce.
The BRICS New Development Bank (NDB) could provide the finance for existing African companies partnering with BRICS companies to manufacture semi- or fully-refined products or for African SMEs supplying parts or whole products for BRICS companies’ manufactured products.
South Africa, as a voice for Africa in BRICS, has a golden opportunity during its BRICS presidency to push for the transformation of the current dominant BRICS’ company Africa investment model, which delivers low-quality growth, to one which produces a higher quality growth.
A new BRICS company Africa investment model must produce more jobs, reduce poverty more effectively, create more wealth, more widely to Africans; and transfer technology, upgrade Africa’s skills base and create new domestic African businesses.
Finally, a new investment model must have workplace and human rights, environmental protection and community participation safeguards at its core. The BRICS NDB, when it finances BRICS company investments in Africa, must ensure that in return for funding companies adhere to minimum environmental, workplace and human rights and community participation safeguards.
William Gumede is Associate Professor, School of Governance, University of the Witwatersrand; and author of South Africa in BRICS (Tafelberg)
The views expressed here are not necessarily those of Independent Media.