Is Africapitalism the Answer to Africa’s Economic Struggles?

While many African countries go out of their way to make international investors more comfortable, a new economic theory – called africapitalism – positions domestic investment as the answer to the continent’s economic struggles.

In this article, you will learn what africapitalism is and why it could be the answer to Africa’s economic woes.

What is Africapitalism?

Africapitalism is a philosophy developed by African scholar, Tony Elumelu, that promotes private sector involvement in the economic transformation of Africa through investments that generate both economic prosperity and social wealth. It is a form of capitalism defined by its humanist approach where entrepreneurs are driven not only by the desire to make a profit but to uplift their immediate societies as well.

“Africapitalism is a call-to-action for businesses to make decisions that will increase economic and social wealth, and promote development in the communities and nations in which they operate,” according to the Tony Elumelu Foundation.

Overemphasis on Foreign Investment

Presently many African countries desperately go out of their way to make life very comfortable for prospective foreign investors. Sadly, this leaves countries open to manipulation and unfair deals. That is less likely to occur with a domestic investor.

For example, a foreign mining investor who is aware of a country’s undesirable infrastructure deficit position might use this knowledge to negotiate a contract that may be beneficial to his business but leaves the population of the host country in a worse off position.

This is quite evident with the so-called “engineering, procure and construct (EPC) contracts” often handed to foreign investors.

Under such arrangements, the investing entity will be free to procure materials from their respective homeland, employ personnel from home while using banking services of a foreign bank. In other words, such arrangements are designed to limit the investment multiplier effect on the host country. No employment opportunities will arise for locals while the local economy will not see improvements.

Ubuntu as the Motivator

In contrast, when the investor is domestic, their immediate concern might be the welfare of their key employees or the road network leading to his mining operations. Just as they are primarily concerned with making a profit, domestic investors are also aware that a happy community translates to a happy working environment. Hence, he or she is likely to be more motivated to assist the community. After all, it is the African thing to do or “Ubuntu.”

Unfortunately, Africa’s FDI dependency syndrome often blights this sound judgment.

A few years ago, when Zimbabwe was experiencing one of its worst economic declines, a discovery of diamonds in the east of the country brought an unexpected turn of fortunes for the suffering masses. As expected, there was a mad rush to extract the alluvial diamonds as thousands of Zimbabweans flocked to Chiadzwa, a remote town southeast to the capital, Harare.

An entire ecosystem was built in a very short space of time. Several mining syndicates comprising of four or more artisanal miners operated 24 hours a day. These informal miners were supported by traders who brought everything from clothing and food to anything that made life easier for the miners.

Chiadzwa mining syndicates were managing to extract raw gems worth thousands of dollars per shift and the spending that would ensue in areas in close proximity helped reverse the effects of the then economic recession.

In fact, the Chiadzwa and Marange diamond mining proved to be an oasis of prosperity in a country reeling from the effects of hyperinflation. All this happened in an area that had almost zero business infrastructure or the other key demands often made by foreign investors.

Flashes of Africapitalism

While this may not be the exact replica of Africapitalism as championed by Elumelu, this Zimbabwean experience, however, had important elements of what this brand of belief entails. Had authorities in Harare thought of supporting instead of banning informal diamond mining, this forgotten area of Zimbabwe would probably be one of the country’s most prosperous.

Sadly the then broke government had other ideas. Informal mining was violently crushed to make way for foreign investors. After the clearing out, the so-called formal diamond mining companies invaded the area while the ecosystem that existed prior to this all but collapsed.

It took a few years for Zimbabweans to realise that the formalisation of mining in the area had only benefited a few foreign mining companies and corrupt politicians. The rest of the immediate communities received nothing.

Today, mining in the area has ground to halt and the communities have nothing to show following the depletion of diamonds. The flaws of crony capitalism were laid bare. This should be enough to force a rethink on the importance of FDI in the development of African countries.

Africapitalism promises to be a philosophy that can help harness Africa’s true potential because it is anchored in humanist ideals. Whether this new economic theory will be embraced by the continent, however, remains to be seen.