Re: [DEBATE] : MILKING THE REGION? SOUTH AFRICAN CAPITAL AND ZAMBIA’S DAIRY INDUSTRY
Patrick Bond
pbond at mail.ngo.za
Sat Jun 14 12:07:54 BST 2008
(Good material - the whole article should be up, esp. for those with
slow URL connections.)
MILKING THE REGION? SOUTH AFRICAN CAPITAL AND ZAMBIA’S DAIRY INDUSTRY
by Bridget Kenny & Charles Mather
The Zambian dairy sector is currently undergoing a phase of dynamic
change and development. Foreign Direct Investment (FDI) by South
African companies in the processing node of the dairy chain, combined
with significant developments in the retail sector, have led to rapid
changes in both the production and consumption of dairy products. While
the structural adjustment programme in Zambia that underpinned the dairy
and retail privatisations has been widely criticized for its negative
impact on labour markets, industrial capacity, living standards and
overall economic sovereignty, the case of the dairy sector raises
important questions around strategies for engaging FDI.
"While the structural adjustment programme in Zambia that
underpinned the dairy and retail privatisations has been widely
criticized ... the case of the dairy sector raises important questions
around strategies for engaging FDI."
Are there ways of “disciplining” FDI to ensure local production and
consumption benefits – even in poorly resourced countries like Zambia?
Can foreign investment be channelled to fuel local development? Are
local accountability and inclusion consistent with commercial viability?
In each case, the Zambia dairy sector raises new and perhaps unexpected
answers to old questions.
Zambia’s Dairy Sector
National dairy sectors are typically organised around integrated primary
production, milk processing and commodity retailing chains. In Zambia,
commercial components of the industry have been in place since the
1920s, when a small group of white settler farmers introduced dairy cows
to the country. A modest dairy industry was established by independence
in 1964. Following independence, the departure of many white dairy
producers and new primary production development schemes instituted by
the Zambian government, the sector was substantially restructured. The
results were distinctly mixed.
A decline in commercial milk production from the mid-1960s into the
1970s coincided with increases in dairy consumption, especially in the
growing urban centres of Lusaka, Livingstone and Copperbelt towns like
Kitwe and Ndola. Government responded by establishing parastatal dairy
operations on former white settler owned farms. Production on these
farms, heavily subsidised by the state, began in the late 1960s. Within
a decade they were supplying over 30 percent of processed milk. However
production bottlenecks limited further expansion, and the country
remained dependent on imports to meet local consumption needs.
Meanwhile, the government launched various donor-backed schemes to
increase milk production through encouragement of smallholder farming. A
Dairy Settlement Scheme saw the identification of land in peri-urban
areas suitable for dairy cows and the training of farmers in dairy
husbandry and management. A Rural Milk Production Scheme, supported by
the World Food Programme, involved the identification of smallholder
farmers, who were provided with cows on loan and support in marketing
milk; and the Smallholder Dairy Development Project, a World Bank funded
initiative, aimed at establishing 1800 farmers with soft loans for the
purchase of animals and equipment, producing milk for the government’s
own Dairy Produce Board (DPB).
These schemes were largely unsuccessful from the 1970s, and very little
of the total milk processed in Zambia today originates from these
initiatives. The reasons for failure were characteristic of such
approaches: insufficient extension work around dairy cattle management,
a complete absence of financial management support to individual
beneficiaries, and continuing dependence on external inputs like
manufactured feed (which exposed farmers to volatile swings in exchange
rates), all contributed to stagnation in the smallholder sector.
Meanwhile the DPB, which controlled milk processing from the mid 1960s
and had several processing plants across the country, was afflicted by
financial and management problems. Distribution chains, too, were
inefficient and often unprofitable. Growing demand moved ahead of local
production and supply chains.
"(Government dairy) schemes were largely unsuccessful from the
1970s... Growing demand moved ahead of local production and supply
chains."
Restructuring through Privatisation
In the 1990s, Zambia’s embarkation on a wide-ranging structural
adjustment programme had a dramatic impact on the dairy sector. Central
links in the parastatals commodity chain, including the DPB and the
dominant state-owned national supermarket chain, were earmarked for
restructuring and privatisation. The prospect of a sudden influx of
dairy sector FDI amid the loosening of import controls on commodities
raised fears by some that local production would be effectively
marginalised, a new case of “deindustrialisation” by adjustment. The
reality would be less bleak and more ambiguous, with some positive signs
– however unexpected – of local development in the sector.
The cornerstone of the parastatal dairy sector, the DPB, was privatised
in the mid 1990s when its majority stake was sold to South African-based
Bonnita for US$800,000. Zambian commercial farmers were guaranteed 28
percent of the shares in the new company, and Bonnita committed to
retaining the DPB’s 130 employees. In the late 1990s, Bonnita South
Africa was itself bought by Parmalat, the Italian dairy multinational,
making Parmalat the new direct investor in Zambia via South Africa.
Parmalat remains the dominant player and now processes almost 50 percent
of the raw milk produced in Zambia by commercial farmers and
smallholders. There are at least 30 other smaller processing plants that
are involved in a range of fresh and processed dairy products, with
several of these linked to local dairy cattle farms. One, the
Livingstone-based Finta Dairy, has processing capacity to match
Parmalat’s but its production output is far lower, with its efforts
focused on capital intensive long-life milk products – much of which
relies on imported powdered milk inputs.
In the same period as the DPB deal, government privatised its national
grocery chain, selling its 17 store network in 1996 to South Africa’s
multinational supermarket corporation, Shoprite. As a parastatal, the
chain had been poorly managed and resourced, and its shops were mostly
uncompetitive and loss-making. As a result, Shoprite was able to
negotiate substantial concessions during the privatisation process,
including tax holidays and customs waivers, which benefited the new
owner over competitors – including the South African franchised Spar
chain (currently has 4 stores but plans for 30), the local Melissa
network and many independent grocers (see Table below). In the context
of experiences in other countries, where the influx of multinational
retail businesses had led to restructuring and decimation of local food
commodity chains, there was considerable anxiety about the impact of the
Shoprite privatisation on domestic dairy farmers, processors and
competing retail businesses.
Supermarket No. of Stores Urban (Lusaka) Rural Towns Origin
Shoprite 18 4 14 South African
Spar 2* 2 0 Franchise – South African
Melissa 3 3 0 Zambian
Independents Several Several Several Zambian
Table: Supermarkets selling food products in Zambia, 2004 *4 stores by
2006 (Source: Emonger 2006: 804)
New Dynamics Emerge
The arrival of Parmalat and Shoprite as dominant players in two key
components of the dairy commodity chain, processing and retail,
fundamentally changed the Zambian dairy industry – but without shaping
it entirely to the interests of the new market leaders. Confronted by
international and domestic production constraints, local competition,
and rising local demands for linkages with local production and
distribution networks, the FDI ventures were forced to engage with the
complex changing realities of the local business terrain.
One reality involves the sources of local primary production. Parmalat,
the country’s largest milk processor, receives 70% of its raw milk from
large commercial farmers. But it also processes milk from approximately
400 smallholder farmers who are organised into cooperatives, or who
supply the processor individually. Indeed the number of larger
commercial farmers has remained static or has declined since the early
1990s, while the amount of milk produced and processed by smallholders
has been increasing. Faced with rising demand, the dairy processing
sector – including smaller local players in Zambia – now sees a
revitalised smallholder producer sector as the only viable way of
increasing raw milk production in the medium term. Instead of
marginalisation of small-scale dairy producers, Zambia has seen a
different dynamic: in the case of Parmalat, the company (in cooperation
with the Zambian government) is consolidating sourcing strategies from
smallholders by investing in infrastructure to assist them in improving
the volumes and quality of raw milk. Support is also being provided for
the transportation and collection of raw milk, which historically has
been a serious problem for smallholders.
"Instead of marginalisation of small-scale dairy producers, Zambia
has seen a different dynamic:
... investing in infrastructure to assist them in improving the volumes
and quality of raw milk."
Further down the production chain, Parmalat’s linkage strategies have
led to improvements in the quality and variety of dairy products
overall, with positive effects on local processors and the growth of the
industry. A range of small scale operations making a variety of dairy
products, including butter, cheese, yoghurt and long life milk have
survived by improving production standards and better matching the needs
of a growing local market. Fresh products like milk and yoghurt, which
have a shorter shelf life and are more costly to transport, have
provided clear advantages to locally based processors. While Zambian
retailers and dairy processors continue to source cheese, butter and
other processed products from South Africa and further afield, this
practice is currently the subject of intense debate within the national
Dairy Processors’ Association. The association has been increasingly
successful in limiting dairy imports particularly when they can be
sourced locally.
The changing terrain of retailing has also had important knock-on
effects in the dairy industry. There are four main retailing channels
for dairy products in Zambia: large and medium supermarket chains,
smaller retail shops mostly in urban compounds and smaller towns,
Parmalat-owned metal shipping containers in urban compounds, and
informal vendors. Additionally many processors sell to wholesalers who
in turn sell to smaller retail shops and informal vendors around the
country.
Shoprite, the country’s largest retailer, sources many dairy products
locally— fresh milk, yoghurt, and some cheese and butter (though it also
continues to import processed items from South Africa, Ireland and
Denmark). However most of its locally sourced goods come from large
scale processors, including Parmalat and Finta. Shoprite also has a
“strategic partnership” with Zambeef (a medium-sized local producer) to
run its in-store butcheries, and it stocks Zambeef’s butter and fresh
milk. Importantly, the partnership ensures that Shoprite does not
compete directly with Zambeef’s own network of retail shops.
For the most part, local smaller processors have been excluded from
Shoprite’s supply chain by the latter’s high sourcing standards for
product volumes, reliability, and quality. Shoprite generally requires
processors to supply all of its branches, and small-scale processors
generally cannot meet these volume requirements; nor do they have the
transport infrastructure to deliver to all branches, or the capacity to
meet the extended credit cycle which Shoprite often expects of
suppliers. In addition, Shoprite also insists on standards of quality,
packaging and presentation that are uneconomic for smaller processors.
For example, having invested heavily in refrigeration capacity, the
chain demands ten-day shelf life of its fresh milk, where smaller
processors may have only one-day shelf lives. High standards around
weight packaging and labelling, including automatic bar coding and
sell/buy date information, also pose challenges for small scale suppliers.
Other dairy retailers, like South African franchised Spar and the
Zambian-owned Melissa chain, have been more accessible to smaller
processors. Evidence suggests that the growth of dairy retail
competition is forcing Shoprite to be more flexible in its product
sourcing, and rethink strategic links with suppliers. Spar stores do not
buy dairy products centrally, and evidence suggests that this has
enabled Spar to source from some smaller milk and cheese processors who
could not meet Shoprite’s volume or quality standards. The Melissa chain
sources from large and small local and international suppliers depending
on price. While it has short term and sometimes erratic sourcing
arrangements with suppliers, it too serves as an alternative client in a
growing market. So do smaller independent retail stores, often located
in compounds and small towns where consumer markets are competitive,
highly price sensitive and not easily reached by the bigger chains and
stores. Parmalat also has its own distribution networks of metal
shipping containers in compounds. The company appoints agents who sell
the milk, and Parmalat owns the containers. The agents are paid by
commission on the amount of milk sold. Smaller processors who focus
mainly on producing the least capital intensive products, like yoghurt
and sachets of milk, often use mobile vendors to sell their products on
the street in compounds.
Sub-imperialism or Something Else?
While it is clear that recent South African investments have inspired
new dynamics in the Zambian dairy sector, their implication for national
development, local businesses and ordinary Zambian consumers is open to
debate. But the argument that larger commodity-focused FDI brings with
it destructive “sub-imperial” strategies for displacing local producers
– a view associated with sub-imperialism – does not adequately explain
Zambian dairy dynamics. Instead, the last decade demonstrates not only
the complexity of production restructuring in practice, but also the
opportunities for host countries to discipline incoming foreign
investors. While the dairy sector has specific dynamics that facilitate
constructive interaction with external companies, the Zambian case also
provides broader lessons about the “politics of the possible” for
holding FDI accountable by local states.
"While the dairy sector has specific dynamics that facilitate
constructive interaction with external companies, the Zambian case also
provides broader lessons about the ‘politics of the possible’ for
holding FDI accountable by local states."
In Zambia, the peculiarities of dairy production have afforded special
leverage to local players. The bulkiness and perishability of raw milk
products like fresh milk and yoghurt means that these products are not
normally traded internationally or even regionally, and are instead
locally produced and sourced. At the same time, several dairy products
including butter, cheese and long life milk, are more easily transported
over distance, and also can be manufactured using milk powder – which is
a globally traded commodity. Ironically, this currently works in Zambian
producers’ favour: a global shortage of milk powder has pushed up its
costs to uncompetitive levels in the Zambian milk market. Nonetheless,
internationally traded processed products remain heavily subsidised in
places like the European Union. Meanwhile, international health and
hygiene standards associated with raw milk production and processing
enable a degree of local market protection, under the banner of consumer
protection.
This evolving mix of production factors presents opportunities for a
range of interests and agents in the Zambian dairy chain, which
continues to change. There is growing evidence that the simple
categorisation of capital as either “foreign” or “local” provides little
help in predicting the actual behaviour of companies in Zambia. Indeed,
the way in which companies identify themselves has changed over time,
partly because some agents have become increasingly “embedded” in the
Zambian political economy, for both “push” and “pull” reasons. This
especially, adds new complexity to any efforts to identify a company as
being a sub-imperial agent; and raises important questions about the
scale at which sub-imperialism as a concept can be used. The
experiences of Parmalat and Shoprite both point to important lessons
involving FDI, market discipline and local accountability.
Embedding as Good Business Practice: Parmalat
By engaging with foreign producers in the different contexts of a
changing local market, Zambian dairy producers have developed increasing
capacity and skill to defend local interests while consolidating local
commodity chains.
At first glance, Parmalat and its strategies could be interpreted as
sub-imperialist. It is a subsidiary of a South African branch of a
large multinational corporation, and continues to import processed dairy
products from South Africa. Although it imports mostly processed
products, it occasionally brings in products at higher cost that can be
produced locally for less using local suppliers of raw milk.
That said, many of Parmalat’s market strategies suggest a perceived need
to demonstrate a commitment to the Zambian political economy by making
concessions to local interests. For instance, in negotiations with the
Dairy Processors Association, Parmalat came under strong pressure to
discontinue imports of dairy products that could be sourced locally. It
responded by restricting these imports, agreeing informally to bring in
only products that could not be produced locally, such as speciality
cheeses and flavoured butters. Parmalat also agreed to upgrade its
Zambian UHT plant in order to boost local production and reduce the need
for imports. Significantly, no legal compulsion was put in place to
force Parmalat’s shifts; it did so voluntarily and in the spirit of
growing the local dairy sector.
At the same time, it seems clear that Parmalat recognised the political
leverage and production gains that came with its local embeddedness.
Support to the local small scale sector both lends the company a
developmental image and makes economic sense in a period of high
international prices for powdered milk. In addition, the overall
shortage of raw milk due to increasing domestic consumption means that
Parmalat has had to move beyond its traditional supply base of
large-scale commercial farmers. Within the company, there is another
strong motive for nurturing linkages with the domestic industry: by the
original privatisation deal, 33 percent of the company is held by local
farmers and employees.
Ironically, Parmalat’s local linkage strategies contrast with those of
Finta, Zambia’s leading locally owned dairy processor. Finta sources all
of its raw processing material from Brazil. Moreover, its partnership
with South Africa’s Clover company sees Finta serving as a key conduit
for South Africa dairy products into the local market. The location of
company ownership, therefore, is not a reliable guide to market practice.
"Ironically, Parmalat’s local linkage strategies contrast with those
of Finta, Zambia’s leading locally owned dairy processor. Finta sources
all of its raw processing material from Brazil."
The situation with retailers is equally complex. Locally-owned Melissa,
which runs a chain of retail outlets, appears to have no specific
commitment to local dairy processors and seeks out international
products, particularly when they are cheaper. But while Shoprite was
initially not strongly supportive of Zambian dairy suppliers, there is
evidence that local pressure for higher levels of local sourcing has
resulted in strategy changes. The Zambeef partnership is one example;
the allotment of greater shelf space to local ice cream producers
following lobbying from the Dairy Producers Association is another. The
arrival of retailer Spar also added to pressure on Shoprite, as Spar
franchise stores tend to source locally with lower-end competitive
products. As a result, the proportion of locally sourced dairy products
at Shoprite is higher than the chain’s average 30 percent share of
Zambian-sourced foodstuffs.
Trade regulations have also been used by Zambian dairy producers to
protect their market from predatory pricing and competition by external
producers, including Kenyan dairy companies. In the latter case, the
Dairy Producers Association responded to cheap imports by mobilising
government to apply World Trade Organisation sanitary and phytosanitary
standards to block Kenyan milk imports. Illegal imports from Zimbabwe
have also been targeted in the past.
New Dynamics, New Questions
International dairy commodity chains are complex, globally-linked and
highly dynamic. Since the buy-in by South African capital in the 1990s,
it has become increasingly clear that this also applies to the Zambian
case, where expansion of production, processing and retailing capacity
has led to dynamic changes in a commodity chain that had been in decline
for nearly 25 years. But the question is: to whose benefit have these
changes been, and at what cost to local development priorities? Here,
perhaps the Zambian case provides food for thought and lessons for
future strategies in engaging regional FDI.
The transformation of the dairy sector cannot be adequately explained by
straightforward arguments associated with sub-imperialism. That
perspective typically points to FDI’s displacement of local capital and
impoverishment of invaded labour markets, and its objective of expanded
repatriation of profit. In less nuanced versions, notions of
sub-imperialism also entail unidirectional swamping or subordination of
host country political-economic sovereignty.
The experience of dairy FDI into Zambia suggests a much more dynamic and
ambiguous form of foreign-local interaction. While processor and
retailer FDI has established South African companies as local industry
leaders, the terms of engagement with local components of the commodity
chain have helped to discipline the activities of these companies and
ensure the emergence of positive participation in the sector. The
Parmalat and Shoprite ventures have improved the national supply and
quality of dairy products, and created new opportunities for small and
medium sized dairy primary producers, processors and retailers. Zambia
has become less dependent than ever on powdered milk and dairy imports,
while expanding production capacity to record levels for a growing
consumer market.
One key factor in extracting higher local participation in the
re-energised sector involves the specificity of the dairy industry;
another relates to the political strategy of local player interests.
Unlike most processed foods – for which Zambia remains overwhelmingly
dependent on imports – important dairy products like fresh milk and
yoghurt can only be competitively produced locally. In the context of
currently high costs for powdered milk in global markets, this has
forced Zambian processors to pursue strategies to increase local raw
milk production for a range of production needs. The challenge now for
Zambian primary producer networks is to lock large-scale processors and
retailers into local commodity chains, to ensure longer-term growth,
coherence and stability in the sector.
More broadly, the “embedding” of foreign companies is actively being
pursued by a range of local players, with some success. Political
lobbying by dairy industry interests backed by government has created
strong pressures on foreign companies to demonstrate their commitment to
the Zambian economy through constructive interaction and market
concessions. This kind of creative engagement has identified the
commercial gains behind local embedding, not just the political benefits
associated with good corporate citizenship. And there is now evidence
that pressures for embedding are reaching beyond foreign businesses, to
include Zambian-based enterprises that have traditionally sourced
commodities outside the country.
"There is now evidence that pressures for embedding are reaching
beyond foreign businesses, to include Zambian-based enterprises that
have traditionally sourced commodities outside the country."
This final potential twist in the commodity chain – the prospect that
local capital may be disciplined according to the same ethical standards
applied to foreign investors – raises additional critical questions
about the evolving repercussions of South African FDI in Zambia. If FDI
has provoked engagement and resistance from local business interests, it
has perhaps helped to reopen wider debates about the accountability,
responsibility and social embeddedness of national capital, too.
(Bridget Kenny and Charles Mather teach at the University of the
Witwatersrand, in Johannesburg, in the Department of Sociology and the
School of Geography, Archaeology and Environmental Studies respectively.)
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SOUTH AFRICAN INVESTMENT IN AFRICA: RESTRUCTURING AND RESISTANCE
by Richard Saunders
The defeat of apartheid in 1994 liberated not only South Africa’s
internal political processes but also its economic relations with
neighbouring countries in SADC (the Southern African Development
Community). A key outcome was the surge of South African capital
northward after years of dampened large scale investment because of
legal sanction and more informal regulation. By the early 2000s, South
African mining and industrial corporations, financial institutions and
even some medium-sized enterprises, had emerged to become significant
players in SADC Foreign Direct Investment (FDI).
Since then, the region’s foundational economic structures have been
reshaped by South African-led regional economic "integration" against
the backdrop of globalisation, neoliberal reforms and the local policy
rendering of the Washington Consensus, the New Partnership for Africa’s
Development (Nepad). Yet the precise direction and implications of this
process remain unclear for either South Africa, the investment-receiving
or "host" countries or the economic coherence of the SADC bloc as a whole.
"South Africa’s economic expansion is sometimes portrayed as a
one-way process... But evidence increasingly suggests that penetration
of the region is highly contested by host countries... elements of both
‘sub-imperialism’ and local subversion are at play."
South Africa’s economic expansion is sometimes portrayed as a one-way
process, where local environments and communities are passive recipients
of South African-led interventions. But evidence increasingly suggests
that penetration of the region is highly contested by host countries,
and sometimes actively and effectively resisted at local level. In other
words, elements of both "sub-imperialism" and local subversion are at play.
In this context, easy characterisations of all-encompassing regional
re-colonisation by the powerhouses of Gauteng (the industrial and
financial heartland of South Africa) capture neither the diversity of
FDI experiences, nor the lessons for strategic engagement and policy
making which flow from them. From protests over flawed privatisations on
the Zambian Copperbelt, to the defensive posturing of ruling party
"indigenisation" policies in Zimbabwe, to consumer and local producer
resistance to the imposition of South African commodities on regional
markets – communities, workers, businesses and government officials are
developing mechanisms to discipline incoming capital and engage it
around issues of local benefit and accountability.
The success and extent of these efforts vary widely, and reflect the
diverse configuration of power and weakness in business and regulatory
spheres. In all cases, the disruptive, destabilizing impact of new
capital flows is clear, as is the recognised need within host countries
to respond to the changing terrain. The growing presence of China as a
trade and investment partner in Africa, and the rapidly diminishing
credibility of neoliberal development models – especially in the face of
emerging southern alternatives that draw on the experiences, capital,
skills and markets of China, India and Brazil – are changing the scope
of the "politics of the possible" in the field of investment and
business. Traditional forms of cross border economic engagement – both
in the region and in South Africa – will be challenged in the period
ahead. Is this cause for a new round of "Afro-pessimism", or will it
generate something more constructive and strategically viable?
"Traditional forms of cross border economic engagement will be
challenged in the period ahead. Is this cause for a new round of
‘Afro-pessimism’, or will it generate something more constructive and
strategically viable?"
1994: Incentives and opportunities emerge
A potent mix of factors led to the explosive growth of northward
investment after 1994. While the end of apartheid political and economic
isolation brought down important barriers to capital flows, higher home
production costs and stagnant profit margins in a saturated domestic
market provided incentives for producers and traders to move cross
border. The neoliberalised and deregulated consumer and labour markets
found in SADC, though smaller in size and diversity than their South
African counterpart, offered the promise of lower competition and higher
returns – ranging from 30-60% said some reports, compared to typical
South African rates of 14-20%.1 Marginal production costs founded on
appalling wage and benefits packages were also a strong “pull” factor.
In the regional agricultural sector, for example, sugar producing
companies like Illovo and Tongaat Hulett identified low-cost production
opportunities and moved rapidly to clinch privatisation deals.
Foreign currency and follow-on investment also emerged as important
factors. Regional profits could be realised in foreign currency, and
flexible repatriation conditions often meant these could be retained
outside South Africa. For retailers and service providers, this
presented the opportunity of transforming substantial Rand-denominated
production costs into US dollar income, at healthy profit rates, while
retaining flexibility over the investment parking of that income.
According to some observers in the region, it also enabled South African
business to flog uncompetitive, poor quality or otherwise surplus goods
and services in regional markets at unrealistically high prices, to the
detriment of regional consumers.
At the same time, the introduction of lease-hire schemes into poorer
urban and peri-urban areas across the region wrenched open new and
profitable markets for low-end consumer goods. Here, highly skewed
regional consumer credit schemes, in tandem with high inventories of
devalued goods in South Africa, were key. Lusaka, seen by many South
African businesses as a typical regional city, became a testing ground
of sorts: the first new big South African-modeled malls, retail chains,
food and entertainment franchises were established there, and their
performance was monitored closely and used to extrapolate operational
models for elsewhere.
Regional governments also played a role in creating space for the South
African invasion. Pressured by the World Bank, IMF, donors and,
increasingly, by a neoliberalising South African state, SADC governments
led restructuring in the form of privatisation, reformed investment
regulations and finance markets. They opened new large terrains to
private sector speculation that had previously been closed by
parastatal-dominated monopolies. Opportunities emerged in areas such as
mining, banking and insurance, telecommunications, agriculture and
dairy, transport (railways, airlines and ports), and utilities.
"Pressured by the World Bank, IMF, donors and, increasingly, by a
neoliberalising South African state, SADC governments led restructuring
in the form of privatisation, reformed investment regulations and
finance markets."
The South African government also directly facilitated capital outflows
to the region. In March 1997 it initiated the relaxation of exchange
controls for investments into the region and further offshore, with
preferential terms given for the former. Regional investment limits were
increased in subsequent years as other financial restrictions and tax
disincentives were diminished. By 2004, South African firms were allowed
to invest up to R 2 billion per project in Africa (half that for outside
Africa), dramatically up from a lowly R 50 million in 1997.2
The ANC government was clearly responding to a shifting reality on the
ground encountered by its own transnational corporations: a significant
number of South African transnationals were becoming increasingly
dependent on offshore assets and income for their overall viability. By
2002, mining house AngloGold Ashanti and telecommunications player MTN
each derived more than half of their group worth from their African
activities.3 Other companies showed similar levels of exposure to – and
gain from – the region.
Meanwhile, a regional peace dividend also surfaced in the business
sector. This was especially important for mining, where the cessation of
conflict in Mozambique and Namibia enabled the launching of exploration
using modern techniques. There was also new and substantial exploration
in Tanzania, Zambia and Zimbabwe fuelled by liberalised investment
regimes and rising commodity prices. Telecoms, transport and energy
distribution reconstruction also benefited.
An old player resurfaces
Although South African capital has been active in neighbouring countries
since the first scramble for Africa in the late 1800s, its offshore
investment since the transition to majority rule reflects a number of
critically new features. Even as the bulk of South African offshore FDI
has drifted away from Africa towards developed countries – in 2005 the
EU took 76% of South Africa’s outgoing FDI, Africa only 8.8%4 – the
market share of South African FDI into Africa has risen, with the sector
and country spread of new investments expanding rapidly. The
significance of recent intra-regional FDI for host countries is
underlined by the relative scarcity of new or follow-on FDI overall.
While there is emerging evidence that Asian and, to a lesser extent
European and US investors, are developing an interest in African
non-petroleum resources, new FDI expressions of interest remain limited
to a few sectors. It is likely that South African investments will
continue to count among the largest in the region for the medium term.
"By the late 1990s South Africa had emerged as the dominant source
of the SADC’s FDI, overtaking established leaders Germany, the UK, US
and Japan."
By the late 1990s South Africa had emerged as the dominant source of the
SADC’s FDI, overtaking established leaders Germany, the UK, US and
Japan. According to the BusinessMap Foundation, an independent
investment tracking think tank, 25% of all dollar-denominated FDI into
SADC in the decade after 1994 came from South Africa, reaching nearly
40% in some years.5 Over this period South Africans became the top
ranking foreign investors in seven neighbouring countries, taking second
place in one country, and third place in three (see Table 1).
Country SA FDI as % of total FDI Ranking
Angola 1 6
Botswana 58 1
DRC 71 1
Lesotho 86 1
Malawi 80 1
Mauritius -9 3
Mozambique 31 1
Namibia 21 3
Swaziland 71 1
Tanzania 35 2
Zambia 29 1
Zimbabwe 24 3
Table 1: SA Investment in other SADC countries (1994-2003 cumulative)
Source: BusinessMap Foundation
At the same time, South African companies pressed further north,
sometimes using SADC as a regional platform for expansion. In the late
1990s the number of companies operating offshore in Africa doubled. This
invasion was spearheaded by larger companies: according to one survey,
34 of the top companies listed on the Johannesburg Stock Exchange made
232 investments in 27 African countries in the first decade after
apartheid.6
South African private investors were joined by public companies and
government-controlled development agencies, and soon consolidated a
significant presence continent-wide in a range of key industrial,
financial, agricultural and services sectors. By 2004, some estimated
South Africa had become the second-largest source of FDI in the whole of
the continent, anchored by neighbourhood operations that continued to
absorb 80% of the country’s offshore African investments.7 Loan finance
and portfolio (stock market) investment into the region also rose. (See
table in Appendix.)
In SADC, South African companies moved steadily beyond traditional
sectors like mining and minerals processing. While the latter still
accounted for the largest overall investments, there was significant new
FDI into banking, telecoms, retail, tourism and other areas.
The major South African banks each opened or substantially expanded
operations in the region, partly in response to the extended cross
border activities of larger South African corporates, and typically in
competition with established international regional players Barclays and
Standard Chartered. By the early 2000s most SADC countries were host to
at least one South African retailing or merchant bank, and follow-on
investments were in progress.
Telecoms FDI into the region was even more explosive, fuelled by rapid
sector deregulation, woefully inadequate fixed line infrastructures,
very high unmet demand and ease of installation. A massive regional
investment programme led by junior South African player MTN was followed
by local market competitor Vodacom. Strategic partnerships with
international and regional players saw South African telecom companies
spread their operating footprint as far as the huge and lucrative West
African market and beyond into the Middle East. By 2006, telecoms surged
temporarily into the lead position among South African FDI into the
continent, reaching about R 17 billion overall, on the back of
continuing consumer demand and comparatively high rates of profit from
non-South African sources.
Retail and tourism brands – from supermarkets and clothing stores; to
electronic goods distributors, cinema complexes and fast food
franchises; to hotel chains, safari companies and airlines – have
increasingly served as icons of South African business expansion on the
ground in SADC. While their widespread presence is not matched by their
overall FDI dollar value, their market significance and impact have been
profound. New retail and tourism ventures have often displaced (and
sometimes absorbed) the activities of local market players, while
providing vertically structured commodity chains for South African
producers into the region. The upmarket Woolworths franchise represented
one example of this combined effect: its local franchisees paid in
foreign currency for licensing rights and standard branding fixtures,
and were compelled to purchase the bulk of retail stock directly from
Woolworth’s South African inventory catalogue. In this way risk was
transferred into the region and South African supply chains were
privileged. (See Table 2 for further examples.)
Year Target Company Target Country Source FDI US$m
Type of Project
2001 Pande & Temane Gas Mozambique Sasol 581 New
2001 Skorpion Zinc Namibia Anglo-American 454 New
2001 Mozal Smelter Mozambique IDC (24% of $1.3bn project)
312 New
2000 Geita Gold Mine Tanzania Anglo Ashanti 205
Acquistion
2000 Motraco Power Mozambique Eskom 130 New/Expansion
2000 Uganda Cell Uganda MTN SA 128 New
2000 Vodacom Cell Tanzania Vodacom SA 90 New
2003 Zimplats Mine Zimbabwe Implats 85 Expansion
Table 2: Major South African FDI into SADC and Uganda Source:
BusinessMap Foundation SADC FDI Database, press releases
Multi-country investments in several sectors afforded transnationals a
competitive edge in single country markets, in terms not only of
production and marketing economies of scale but also of brand
recognition, transportability of clients and intra-firm management of
assets. For example, the South African transnationals could boast a
scope and reach of services beyond the reach of single-country players,
in the coordination of mobile phone network connectivity, cross-border
banking access or inter-country transferable insurance schemes. Standard
Bank’s local presence in 17 African countries, including 10 SADC
neighbours, provided clear advantages that were replicated by many other
firms.
Trade imbalances between South Africa and the region also helped
consolidate this competitive advantage. This imbalance was 9:1 in South
Africa’s favour by the early 2000s (and 5:1 with Africa overall).8 This
skewed trade pattern was strengthened by the regional expansion of
vertically-integrated South African retailing chains that competed
directly with local retailers and producers. Shoprite, for example,
reportedly contributed R 2 billion to South African exports by the early
2000s through its sourcing of retail inputs from its home base.9
In some instances – such as the Mozal aluminium plant outside Maputo,
Mozambique – it is likely that increased FDI helped to deepen the
existing trade imbalance by fuelling higher levels of capital and
consumable imports needed to service the new investment.10
Sub-imperialism or subverted power?
With the settling-in of new FDI in the late 1990s, new questions
surfaced about its longer term impact on local economic sovereignty and
business development. Many saw recent investments as predatory,
displacing existing local enterprises and production through a mix of
aggressive and unfair intra-firm trade, pressurized merger and
acquisition bids, politically-leveraged access to large scale
privatisations and cheap financing from South Africa, and skills
poaching.11 The unemployment effects, service disruptions and costs,
national revenue shortfalls and diminished local accountability of FDI
operators became glaringly apparent, and the subject of increasing
public scrutiny.
"With the settling-in of new FDI in the late 1990s, new questions
surfaced about its longer term impact on local economic sovereignty and
business development. Many saw recent investments as predatory ..."
In South Africa and SADC there is wide-ranging debate among government,
business, labour and local communities about the aims, benefits and long
term implications of the changing patterns of regional investment. There
is similar diversity in the kinds of practical local level responses to
that FDI which has taken root. Both are changing the context and to some
extent the terms, of South Africa’s evolving economic relationship with
the region.
One view situates South African FDI within the broader dynamics of
neoliberal globalisation, and sees the northward push by Pretoria and
South African capital as part of the recolonisation of SADC and the
continent by western dominated interests.12 Here, South Africa acts as
an active proxy for international capital, multilateral financial
institutions and governments, helping to soften legal and political
resistance to foreign capital, and open up access to extractive
resources, business and consumer markets. The ANC government’s
championing of Nepad, its own trade pact with the EU and growing role
within multilateral institutions – along side its skewed bilateral trade
and investment deals with neighbouring states, for example – are cited
as evidence of a new sub-imperialism, orchestrated from Pretoria for the
benefit of South African and international capital.
In this view, new FDI is seen mostly as negative: parasitic,
opportunistic, displacing of local capacity and employment, and
resulting in profits going to South Africa or overseas, rather than to
host country markets. And the "African Renaissance" – heralded by the
ANC government in the late 1990s and enthusiastically endorsed by
northward-looking South African corporations – becomes an ideological
excuse for white business’ return to its former colonial-era stomping
grounds.
Others portray northward FDI in less negative – although not
unambiguously positive – terms for both sides of the border.13 They cite
the relative neglect of African consumer and services markets by
non-African FDI, the perilous state of capital-starved regional
infrastructure, and the benefits of investments that are more exposed to
regional consumer, economic and political leverage due to their local
regional roots. The shared conclusion is that growing interdependence,
however uneven, among key southern African regional economies is likely,
even if the political implications for regional integration are less
certain.
But parallel to these debates, local businesses, labour, communities and
policy makers are developing new ways of dealing with – and
"disciplining" – incoming capital. While the power of new FDI in the
region is displayed in national accounts, diminished workforces and in
the changing street-level profile of commercial districts, malls and
products, the residual power of host country interests is also
increasingly evident. Just as some kinds of FDI disrupted local business
and labour markets over the past 15 years, local communities and
business stakeholders are finding new ways to engage with, contain and
place other sorts of demands on foreign companies. A process of critical
and reflective engagement is under way.
"But parallel to these debates, local businesses, labour,
communities and policy makers are developing new ways of dealing with –
and ‘disciplining’ – incoming capital."
At ground level across the region, the mediated presence of FDI is
becoming a fact of life. The unilateral power of intra-regional FDI is
being challenged, raising important questions about the potential for
and future shape of SADC, as an integrated economic region. Witness
Zambia: it was among the first countries in the region to decisively (if
disastrously) implement neoliberal reforms leading to large scale
privatisations in which South African firms featured prominently. But it
has also been an incubator for multiple forms of resistance aimed at
changing the terms of local engagement with FDI, and challenging, more
broadly, neoliberalism’s established models of local development.
Zambia: Privatisation and popular responses
Privatisation began in earnest in Zambia in the mid 1990s, with key
components of the parastatals sector put on the bloc for sale. In all,
more than 250 enterprises representing more than 85% of the Zambian
economy were sold. These included not only the state-run mining sector,
but also agricultural operations, transport and electricity grids,
national retail chains, banks, hotels and game parks. South African
investors would play a central role in the bidding, amid widespread
allegations of corruption and bribery, insider trading and mounting
pressure for a quickening of sales by the IMF, World Bank and other
donors.14
The profoundly negative impacts of privatisation soon followed:
spiralling unemployment and reduced security of employment, asset
stripping, declining production, and increasingly secretive policy
making and implementation by government.
The disaggregation and subsequent sale of the massive state-owned Zambia
Consolidated Copper Mines (ZCCM) was the centrepiece of government’s
privatisation programme in the late 1990s. However, it was not long
before protests from local communities surfaced around the terms of sale
– including the shedding of social assets and responsibilities like
pension benefits, housing, health care and schools by the new mine
owners. While this kind of resistance was repressed, sometimes
violently, by the state, a new culture of civic resistance and demands
for accountability slowly took root.
Today, there is widespread popular debate in the civic movement, trade
unions and political parties about the consequences of the 1990s
neoliberal reforms and the mistakes associated with privatisation. There
have also been practically-oriented forms of resistance that have
resulted in creeping concessions from foreign investors to Zambian
businesses, workers and communities. The privatisation of the national
grocery chain and its takeover by South Africa’s Shoprite is one such
example; Zambia’s privatised dairy sector, in which the new South
African owners came under pressure to demonstrate local responsibility
and "embeddedness", is another example—both of which will be examined in
more detail in the articles of this series.
"Today, there is widespread popular debate in the civic movement,
trade unions and political parties about the consequences of the 1990s
neoliberal reforms and the mistakes associated with privatisation."
While Zambia’s recent experience of FDI has been characterized by the
familiar negative features of diminished control and unfulfilled
expectations, current popular and business responses – and increasingly,
political party ones as well – reflect a concern with finding strategic
ways forward. In particular, there is growing recognition of the
vulnerability of foreign enterprises to local business, consumer and
political pressure, and of the need for increased assertive engagement
of foreign investors leading to the enabling of local stakeholders.
There are strains of resurgent nationalist, anti-globalisation
sentiments in all this, replete with political energy as well as
alternatives that are perhaps too-narrowly focused. But it is also clear
that there has been no easy sealing of any sub-imperial compact in the
post-privatisation era.
Old models, new environments and emerging questions
In recent years, the unmistakeable decline in the credibility of
neoliberal development models in the Global South has been exacerbated
by the growing presence of China and India as alternative trade and
investment partners in Africa. This represents something of a
double-edged sword: while southern alternatives for foreign development
capital are now more readily accessible, it is not clear that they will
be more transparent, accountable and socially responsible than recent
waves of FDI; nor is it certain that their impact on local trade and
investment patterns will be any less disruptive and destabilizing.
"While southern alternatives for foreign development capital are now
more readily accessible, it is not clear that they will be more
transparent, accountable and socially responsible than recent waves of
FDI."
Indeed, some suggest that the growth of Chinese trade and investment
involvement in the region’s resource and industrial sectors could
profoundly undermine the fragile coherence established under the current
domination of South Africa, without putting in place a
regionally-grounded alternative. Beyond the extractive sectors and basic
processing, the fear is that there will be little regional FDI under a
future trade-dominated economic regime.
All the more reason, then, to pay close attention to the experiences and
positions emerging from production places, labour markets and
communities of the region, as they seek to redefine the rights and
limits of foreign investment on new terms. Is it possible to
democratically "embed" foreign and local capital within national
economies? What role might the state have in this process, and what
rules of engagement should be considered at the regional level? In
various ways, these are the sorts of questions that are now being posed
by SADC citizens, businesses, civil society and governments, in response
to the post-apartheid FDI tsunami.
Notes:
1. Naidu and Lutchman (2004), p. 12.
2. UNCTAD (2005), pp. 16-17.
3. UNCTAD (2005), p. 14.
4. UNCTAD (2005), p. 4.
5. BusinessMap (2005).
6. UNCTAD (2005), p.5, citing figures from the South Africa Institute of
International Affairs and "Africa Inc.", published in Who Owns Whom
2005, Dun and Bradstreet, 2005.
7. Naidu and Lutchman (2004), p.13.
8. Daniel, Lutchman and Naidu (2005), p. 545.
9. Naidu and Lutchman (2004), p. 14.
10. Castel-Branco (2004).
11. See Daniel, Naidoo and Naidu (2003); BusinessMap (1999); and
BusinessMap (2000).
12. See for example, Bond (2004), Bond and Kapuya (2006).
13. See a series of studies carried out under the auspices of the South
African Institute for International Affairs, including Games (2004); and
annual reviews by South Africa’s Human Sciences Research Council,
published in the State of the Nation series.
14. Larmer (2005), p.30.
(Richard Saunders teaches in the Political Science Department at York
University in Toronto, Canada. He is the author of Never the Same Again:
Zimbabwe’s Growth towards Democracy, 1980–2000 (2000) and Dancing Out of
Tune: A History of the Media in Zimbabwe (1999).)
Appendix:
Sector Corporation Locations in rest of Africa
Aviation & Airport Services Airports Company of South Africa 9
countries
Airlines South African Airways 2 joint ventures (JVs); SAA
reaches 20 African cities
Banking & Financial Services
(i) Private Enterprises
(ii) State Enterprises
Stanbic
ABSA
Stanlib (Standard/Liberty Bank JV)
First Rand & Rand Merchant Bank
Nedbank
Investec Ltd
Metropolitan Life
DBSA
IDC
9 countries
4 countries
9 countries
3 countries
7 countries
4 countries
5 countries
7 countries
20 countries
Construction Murray & Roberts
Group 5
Concor Offices in 3 countries; contracts in 13 countries
Contracts in 13 countries
Contracts in 9 countries
Energy Sasol Contracts in 4 countries. Planned merger of liquid
fuels with subsidiary of Malaysian Petronas to establish presence in 14
countries.
Manufacturing Nampak
Sappi
SABMiller
Illovo Sugar
Tongaat Hulett
Barloworld
AECI subsidiaries AEL & Dulux 10 countries
3 countries
13 beer breweries in 10 countries; 35 sorghum breweries in 5 countries
5 countries
3 countries
7 SADC countries
AECI registered in 7 countries; Dulux producing in 5 countries
Media & Broadcasting Multichoice TV & subscribers in 21 countries
Mining De Beers
Anglogold Ashanti
Goldfields
Randgold Resources 3 countries
8 countries
Operations in 1 country; exploration in 3 countries
3 countries
Retail Shoprite
Massmart (Makro, Game, Dion, Cash & Carry, Builders Warehouse) Metcash
Wooltru/Woolworths
Steers Holdings
Pepkor (Pep Stores, Ackermans)
Ellerine Holdings (Ellerines, Town Talk Furnishers, Furn City, Rainbow
Loans, CPI, Foreign, Wetherlys, Osiers, Roodefurn)
JD Group (Abra, Barnetts, BoConcept, Bradlows, Electric Express, HI-FI
Corporation, Joshua Doore, Morkels, Price & Pride, Russells) 100
outlets in 15 countries
300+ outlets in SADC & Uganda
3 countries
52 stores in 19 countries
Food franchises in 22 countries
6 countries
94 stores in 5 countries
28 stores in 4 countries
Research & Development V&A Waterfront Contracts in 3 countries for
shopping feasibility studies.
Telecommunications
(i) Private Enterprises
(ii) State Enterprises
MTN/M-Cell
Vodacom
Transtel (a division of Transnet)
Eskom Enterprises Telecoms
Celular & fixed line contracts in 5 countries; bidding for additional
contracts
Cellular contracts in 5 countries; bidding for additional contracts
Manages telecoms network with SA multinationals in Africa (banks, retail
stores, civil & security networks)
Cellular/fixed contract in 1 country
Transport Transet (State Enterprise with 9 divisions involved in
Africa, including Spoornet Joint Ventures and its subsidiaries Comazar,
Transwerk and Transtel)
Unitrans Contracts in 20 countries
7 countries
Tourism & Leisure Protea Hotels
Southern Sun
Sun International
Imperial Car Rental Resorts in 9 countries
Resorts in 6 countries
Resorts in 4 countries
110 locations in 8 SADC countries
Utilities
(i) Power
(ii) Water
Eskom Enterprises
Umgeni Water
3 management contracts; 1 JV; 28 country contracts
3 country contracts
Information Technology Arivia.com (State Enterprise)
Mustek (Mecer brand) Offices in 3 countries; JV in 1 country;
contracts in 4 countries
Dealerships in 8 countries
Major SA Corporations & Parastatals Source: HSRC Corporate Mapping
Database 2004
Select bibliography:
Bond, P. (2004) "Bankrupt Africa: Imperialism, Sub-Imperialism and the
Politics of Finance", Historical Materialism 12:4, 145-172.
Bond, P. and Kapuya, T. (2006), "‘Arrogant, disrespectful, aloof and
careless’: South African Corporations in Africa", OpenSpace (OSISA,
Johannesburg) 1:4 (June).
BusinessMap (1999) SA Investment 1999: The millennium challenge
(Johannesburg: BusinessMap SA).
BusinessMap (2000) SADC Investor Survey: Complex Terrain (Johannesburg:
BusinessMap SA).
BusinessMap Foundation (2005) Foreign Direct Investment Database,
Johannesburg.
Castel-Branco, C. N. (2004) "What is the Experience and Impact of South
African Trade and Investment on the Growth and Development of Host
Economies? A View from Mozambique", Stability, Poverty Reduction, and
South African Trade and Investment in Southern Africa, a conference
organised by the Southern African Regional Poverty Network and the EU’s
CWCI Fund.
Daniel, J. Lutchman, J. and Naidu, S. (2005) "South Africa and Nigeria:
two unequal centres in a periphery", in Daniel, Southall and Lutchman,
eds., State of the Nation 2004-2005 (Cape Town: HSRC Press).
Daniel, J. Naidoo, V. and Naidu, S. (2003) "The South Africans have
arrived: Post-apartheid corporate expansion into Africa", in J. Daniel,
A. Habib and R. Southall, eds., The State of the Nation 2003–2004 (Cape
Town: HSRC Press).
Games, D. (2004) "The Experience of South African Firms Doing Business
in Africa: A Preliminary Survey and Analysis", South African Institute
of International Affairs, Johannesburg.
Larmer, M. (2005) "Reaction and Resistance to Neo-liberalism in Zambia",
Review of African Political Economy, 32:103, 29-45.
Naidu, S and Lutchman, J. (2004) "Understanding South Africa’s
Engagement in the Region: Has the Leopard Changed its Spots?", paper
presented to Stability, Poverty Reduction, and South African Trade and
Investment in Southern Africa, a conference organised by the Southern
African Regional Poverty Network and the EU’s CWCI Fund.
UNCTAD (2005) "Case study on outward foreign direct investment by South
African enterprises", Paper produced by Trade and Development Board,
Commission on Enterprise, Business Facilitation and Development, for
Expert Meeting on Enhancing the Productive Capacity of Developing
Country Firms through Internationalization, Geneva.
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