Stop Driving Capital Away: A Lesson from South Africa

Oil & gas, industrial, consumer goods record worst performance as investors lose N879bn

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A couple of weeks ago, the news broke that Africa’s largest company – worth several times the size of the entire Nigerian Stock Exchange and on paper as much as 35 percent of its home country’s GDP – would carry out a $100 billion listing in the Netherlands. Against a backdrop of palpable outrage in South Africa, Naspers the parent company of Multichoice, which holds a massive 31 percent stake in Chinese internet giant Tencent revealed that it would list its foreign assets on the Euronext exchange in Amsterdam, leaving relative scraps like its cable TV division for a secondary listing in Johannesburg.

A few days later, a UN report revealed that while foreign investment into sub-Saharan Africa rose 13 percent last year, it fell a massive 43 percent in Nigeria. In what comes as a surprise to no one outside of Abuja’s government district, investors voted with their feet in the face of increasingly antagonistic regulatory posturing toward big foreign businesses like MTN. In both absolute and proportional terms, Nigeria now ranks behind Ghana in FDI inflows.

This obviously looks bad, but at least we didn’t just get $100 billion taken out of our economy and parked in Europe like South Africa right? Well actually, while Nigeria has no corporate entity close to the size of Naspers that it risks losing, it is losing capital worth far more than Naspers’ balance sheet billions in the long term.

Capital Isn’t Always Money

If you studied economics at a Nigerian secondary school, you were likely taught (erroneously) that there are three factors of production namely land, labour and capital. In fact, there is a fourth element widely recognised outside of our insular West African space as the most important factor of production – entrepreneurship, which is also sometimes known as intellectual capital. Without the knowledge and the human capacity element to power an economy, it does not matter how much land and labour is available. As the world evolves further into a knowledge-based economy, this will only become more pronounced, and here is where Nigeria faces big trouble.

There is currently a significant population of highly skilled, internationally competitive Nigerians living in Nigeria, some of whom are even working remotely for foreign employers and clients. They are not geographically restricted to being in Nigeria, but they remain here for largely sentimental reasons, while supporting the local economy and paying taxes to local authorities. Some of these people include highly paid programmers, doctors, management professionals, pilots, international freelancers and academics.

Losing such intellectual capital to emigration will be especially damaging in the long term because we would also be losing the capacity to train their replacements. Much is often made for example, of the fact that we are losing healthcare professionals at an alarming rate, while having about four times less than the WHO-recommended doctor to patient ratio. While that is bad enough, the creeping and unspoken disaster in that story is that the consultants and professors who will train the next generation of these professionals are now either permanently absent or getting closer to retirement.

I have spoken to a senior staff member at a teaching hospital about this issue, and when I asked how the government sees the unfolding brain drain crisis in the medical sector, his reply went something along the lines of “As they graduate and leave the country, more are writing JAMB and entering medical school to replace them.” The government genuinely believes that Nigeria has an everlasting conveyor belt of talent that will keep the country just about managing to get by, as it is currently doing. The problem is that the intellectual capital that powers the conveyor belt is disappearing, and there is no plan to deal with this. An official ‘soldier come, soldier go, barracks no dey empty’ policy is unsustainable.

Due to emigration and retirement, Nigeria’s teaching hospitals will soon lose those who have trained most of the country’s doctors over the past three to four decades. In all likelihood, their replacements will be those who were not good enough to make the cut for an international placement, which has unavoidable implications for the general quality of the next generation of Nigerian healthcare professionals. A similar phenomenon is taking place across the country’s higher institutions, which does not bode well for the future of Nigeria going into the fourth industrial revolution.

At a time when technology is already making national borders superfluous, only people who can compete globally will have the chance to live meaningful lives in the future. Without the intellectual capacity to drag Nigeria into the 21st century, coupled with accelerating population growth and sinking oil values, we risk becoming the first disrupted civilization of the modern era – a country of 200 million+ economically displaced people.

Enough of the Populism and ‘Okrika’ Socialism

A constant feature of the conversation in South Africa around the Naspers listing was the inference that the company was somehow stealing something from Africa and taking it to Europe. As a legacy of the apartheid economy and a visible symbol of continued domination of Afrikaners over the country’s economy, it is not hard to see why it elicited such reactions. There is a continued (and in some cases, perhaps justified) perception that white-dominated business spaces in South Africa deliberately try to exclude black natives and keep all the action “in the family.” The country’s political lexicon even has a term for it – “White Monopoly Capital.”

While it may be emotionally satisfying and politically expedient to bash companies like Naspers for being White Monopoly Capital, that cannot substitute for good economic policy and support for innovation. In fact, Naspers did not list in Amsterdam because of some White Brotherhood chimera, which politicians like Julius Malema successfully sell. The Euronext simply offers greater liquidity and accessibility to global markets. The Johannesburg Stock Exchange – like its cousin in Lagos – is largely inflexible and limited. These are the boring and unimpressive facts that generally inform business decisions.

Instead of railing against White Monopoly Capital and using the memory of apartheid to threaten businesses with tax increases, South Africa’s politicians would have been better served creating regulation to ease doing business and increase their population’s access to education, That is the only way to compete in this borderless economic world. Similarly, Nigerian politicians should create regulations to make it easier for Nigerian businesses to produce palm oil, instead of imposing a simple-minded ban on palm oil imports that is guaranteed to have no effect other than raising palm oil prices.

In a world where $100 billion can be moved from Johannesburg to Amsterdam with a stroke of a pen outside of government control, waving a big stick alone does not work anymore. We need more carrot, less stick. Easing licensing requirements, elimination of multiple taxation, provision of adequate security and power, removal of export licensing fees; these are just some of the steps that a Nigerian government that wants to increase the country’s productivity should take. Using a stick to intimidate capital is yet another cold-war era legacy that really needs to be left behind where it belongs in the 20th century.

As the example of Naspers shows us, capital has no borders. If we drive it away, it will leave.


David Hundeyin

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