Adetiloye: Value-replacement of exploited resources must be ensured through appropriate laws
Kehinde Adekunle Adetiloye, an associate professor in the Department of Banking and Finance, College of Business and Social Sciences, Covenant University, in this chat with GBENGA SALAU, said halting the trend where foreign firms control $1t worth of African resources must necessarily start with the enactment of laws that enforce value-replacement of exploited resources.
How did we get to a point where foreign companies incorporated in tax haven, and listed on the London Stock Exchange control over $1t worth of Africa’s resources in five commodities, including oil, gold and diamond.
That foreign firms and multinationals control African businesses is not new, and that these companies are more prevalent in the extractive sectors is as old as colonialism itself, and it will continue for sometime. The extractive industry requires a lot of capital and technical know-how that are not immediately available in the domestic economy. This know-how were to immediately transferred to domestic entrepreneurs during the indigenisation processes that took place in the late 1970s and early 1980s.Where the technology and the capital-intensity nature of the industries are not the issues, matter of access to market and managerial capital pose serious problems to firms intending to come into the industry to compete.
Another important issue on the dominance of foreign firms prospecting in Africa in the London Stock Exchange is the issue of access to further capital. This is why some foreign firms and multinationals can start and operate locally in host countries, by continuously using domestic capital to operate and expand. An example of this is MTN.The issue of access to further capital sometimes compels the usage of external financing channels. This is why many foreign firms hold the advantage over their domestic counterparts. Lately, many Nigerians, and even many African firms have rushed to the London Stock Exchange to raise funds, not from the financing banks via Eurobond issues, but through deposit receipts, especially ADRs, even though American are technically dominant).
This informs the sources of capital that these firms are exploiting to raise further capital. The dominant reason for this trend has been the issue of interest rates, which is higher than the average in most developing countries. The interest rate paid here is reputed to be one of the highest in the world. So, many of the firms exploit this to their advantage. Where the spread in Eurobond issued is about three to four and half per cent, Nigeria runs an interest rate spread regime of at least 15 per cent at the minimum.Of course the issue of exchange rate volatility is also there to be considered, but this has easily been dealt with since most of the firms are exporting their products and very little is consumed locally. This therefore helps to solve the problem of repayment even when there is scarcity or insufficient supply of foreign currencies.
A fourth prevailing issue is the fact that London is the foundation of international financing around the world. It is the cradle of offshore financing or financial centres. The Euro-financial market started from London and it constitutes and arranges more than 70 per cent of the Euro-financings done around the world today. Now, the minions of these offshore centres are the shell centres, where free, loose and lax tax laws attempt to give firms leverage by allowing them to escape with slush funds and illicit capital. Among these centres are Bahrain and Panama. Other centres are Hong-Kong and Dubai and Cayman Islands.
International anti-corruption agencies often talk about huge corrupt activities going on in Africa. So, why are they keeping quiet about issues like this?
The new push for the anti-corruption environments came less than 30 years ago. The developed countries discovered that they are abetting and aiding the exploitation and non-development conditions of African countries, in addition to the fact that financial corruption is a cancer. If their firms are engaged actively in corruption overseas, it is a matter of time that they are infested domestically. This forms the background for these countries’ push for a corruption-free economic environment, which has now taken them to deal with their firms, who are caught in the act. Of course, they know that their firms are engaged in it. The firms go through a complex process in the exploitation of resources unduly without benefits to African countries, and this is impossible without the complicity of the local people, especially people in power. Cases involving Nigeria are rife in these areas, especially in the oil sector.
How do you think Africa can get out of this crisis?
The way out of this quagmire is none other than the enactment of laws that enforce value-replacement of exploited resources. Value–replacement attempts to give values for wasting assets that are exploited in the environment where they have been extracted. Despoliation is what we see in the Niger Delta region of Nigeria today. It is not only the Niger Delta region, but where extractive industries have operated for sometime.
The governance process of the environment must improve. Nigeria and the Niger Delta region have not practised the best processes. This is the reason why small lords and fiefdoms arise to enforce a sharing process that recognise themselves and persons and not the community or environment. Do we need laws if people have good conscience? No. It is evil conscience that propel men to do evil and this is the case, not necessarily a case of laws. So, governments must be determined to improve the economic governance of operations in order to guard against wasting assets in the economy. It must also be ready to enforce value-replacement.
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