9 October 2017
Africa – City Zone Initiative
Africa – City Zone Initiative
Private-public investment & development initiative for livable cities with production, services and export in Africa
By: Karsten Riise
Africa’s cities will more than double – livable cities must be established, and 14 million city-jobs must be created every year the next 20 years. In this paper, I propose how the EU in cooperation with African countries, with an invitation to other parts of the world, can jointly pursue private-public city-development in Africa. Denmark/EU and Sierra Leone can create the first city/production zone of this kind, to lead a new way.
A success Concept - coming to Africa
China started its economic miracle by establishing Special Economic (export) Zones near the coast. Capitalists from Hong Kong og Taiwan were the first to be attracted, and together with many more global capitalists who followed, they established export companies in these Zones. Right from the beginning, the Zones had a great deal of autonomy, a mixed public-private economy including state-owned companies, and they were excellently managed by regional authorities.
At the beginning, low wages (with stability) were the main attraction for global capitalists. Soon, value-creation, skills, and wages increased (and stability remained). As the Zones grew, they also multiplied into the interior of the continent. Regional authorities remained in control, and they have done a fantastic job. India is now doing it fantastic too. By learning, also in housing, transport and clean air, we can do it even better in Africa.
In Europe after 1990, a comparable development took place. In the three Baltic countries which were not wealthy in 1990, private investors, especially from Denmark, Finland and Sweden made major investments in business and jobs. Similarly, a larger country like Germany invested in business and jobs in a larger country such as Poland, but also in a medium sized country like the Czech Republic. Note, how smaller rich countries like the Scandinavian to some degree felt more comfortable to invest in smaller growth countries. Larger rich countries can more easily invest in larger growth/developing countries. Only a tendency, because specialized industry clusters emerge, attracting investments across this pattern.
Let us all – African countries together with the world – design and spread out a similar city-business-development in Africa.
Private investments with public planning in Africa
Let us develop city-locations in Africa for efficient business.
With city-planning carried out by for instance the Municipality of Copenhagen (with external assistance), Denmark could create a generic city-plan proposal for a Zone with factories, commerce, housing, infrastructure and banking facilities for “a location near a harbor” in Africa.
This planning must include a basic concept for public administration and development of the Zone, companies and population, and with basic administration rules. The Zone must be planned with all the basics for international export companies to establish at low overall costs. There must be thought of both business and people.
The cost of this work should be shared by a fund with public-private participation, including pension funds and larger companies, including banks and international logistic providers (shipping and port management). The private sector defines what they require for the Zone to become economically attractive, banks supply financial networks, and shipping & port companies connect with logistics from Africa to Europe and other large markets in North America, the Middle East, and Asia. International airlines should be involved in coordinating air connections for business travel. Hotels will be built, and with more and better air connections, this will eventually also open the door for more tourism to Africa – and extra win.
The initiating State (I here propose Denmark, but others could take the lead) and the EU inquire in advance, which countries in Africa would be interested, and work with African partner countries in the process. A group of EU and African countries will be established which will provide input and follow the process.
Because the Zone will be attractive for the establishment of export companies, the Zone will also earn “hard” currency - this can pay for needed know-how, including infrastructure such as power supply, telecom, logistics, etc. As part of “infrastructure” we must include the establishment of reliable bank services networks connected with world financial markets.
And because EU capital co-invests in African Zones, there is a healthy EU incentive for each Zone to become a success with exports. The EU has plenty of special knowhow for export for benefit Africa. But Africa should not simply export unfinished natural resources. Export of manufactured goods and services from Africa must become the way for Africa to pay for more needed high-tech imports. And imports should be mainly for what cannot (yet) be made profitably in Africa. Many high-quality products for consumption and investment must be manufactured in Africa by prestigious competitive African companies, and not just imported. This is a win-win formula – and business interchange between Africa, the EU and other world markets must increase to achieve this. South Korea (which has no minerals) did the same thing in relations with the USA: Starting as a poor, devastated country, South Korea exported increasing volumes of manufactured goods to the USA - and this export in turn paid for import of needed high-tech from the USA. This way, countries like South Korea, Taiwan, Singapore, Malaysia, Indonesia, the Philippines, China, India, Bangladesh (and many more) climb the ladder of technology-design & services, and are today all global high-tech exporters.
Africa can do the same – and the EU must in trade, investment, knowhow and cooperation support this for Africa.
Infrastructure investments and the entire business structure in the Zone should be organized so that Danish/EU-partner participation provides the greatest possible multiplication effect for African business, jobs and authorities. For instance, Danish companies can make infrastructure projects, where they provide limited, but strategic products and services, while the rest is supplied in Africa. African companies for export, construction, trade and services should grow.
Africa has attractive locations for exports - the sailing time to wealthy markets is short - wages are low - and skills are rising.
Business friendly Zones can accelerate this potential.
A starting partner-country in Africa might be Sierra Leone, which has a size that matches Denmark (ref. the experience in the Baltics above). Denmark has 5.7 million people, Sierra Leone has about 7.3 million. Sierra Leone has one of Africa's largest and best-located natural deep-water ports: The sailing time for export goods to Europe and the USA is very short – this is a strategic advantage.
Focusing on one African country which is not too large, Denmark is better able to start a strong long-term development, and enter into priority long-term cooperation with government, province and city authorities. Several Danish and other companies investing in the country may share their experience, together with Danish institutions and organizations.
Together, we can create an African “Singapore”, in a decade.
New Private-Public development concept
All the competencies of a country like Denmark can be bundled together in much better ways, if they focus on one or a pair of not too big African countries in cooperation with business: Education, urban planning, health, water/public supply, human security as well as public services and administration know-how, IT skills, design skills, film & music, architecture, engineering, artisan production, and product quality management. All Denmark’s national competences can much better be merged together into a fantastic package when combined in one African country, instead of being “spread-out”. Between EU and other countries “centers of competence” will emerge – as each country has some fields where their competences are especially well developed.
Denmark knows a lot about farm-development, farm-cooperatives, and food business for a new African food-export-sector. Denmark also knows about quality control for a long range of products, as well as food safety, which is necessary for Africa to access the EU with export products that meet EU specifications. Denmark has architecture and construction know-how in areas with water and mud (relevant in Sierra Leone). Denmark also knows something about tropical medicine.
If it works well with Denmark and for example Sierra Leone, the experience must be multiplied. Finland with neighboring Liberia, for example. Or Germany with Tanzania, Burundi. Portugal and Spain (or Austria, why not?) with Mozambique. France with Côte d'Ivoire. Denmark and France with Guinea Mali and West Africa.
Are these suggested country-combinations good or less good? Europe has a sad colonial legacy in Africa – and I have tried to mention some combinations to address this. Here is a chance to do something good on a large scale. Also in the EU, there has been a lot of sad experience between countries - but these countries have become close partners today. African experience with European languages and cultures can be to Africa’s advantage and tap into Europe’s markets and knowhow.
Everyone will be free to advance specialized industry clusters. For instance, Danish or Swedish companies in the automotive supply-industry might prefer a to invest in clusters in Morocco or Ghana, which already have automotive industries. Danish pharma/biotech-companies might for similarly reasons prefer the Grand-Bassam tech-Zone with Indian participation in Côte d’Ivoire, not so far from Sierra Leone.
Foreign investment and Special Economic Zones have strengthened China's economic independence - China has retained control. Foreign investments have strengthened the independence of the Baltic countries, Poland or the Czech Republic after 1990. We must find forms of cooperation with African countries, which both guarantee private investors, and safeguard the independence of African countries.
To achieve long-term success, these sensitive issues should not be avoided, but be discussed in advance.
If Denmark has many investments in export-industries in one particular African country (like for instance Sierra Leone), and if Danish companies even depend on supplies from subsidiaries and African partner-companies in Sierra Leone, then Denmark will have a healthy incentive to act as "goodwill ambassador" for Sierra Leone (as an example) in its trade relations with the EU. New partnership perspectives open-up this way.
As Denmark establishes a special, deep relationship with one (not too large) African country, larger African countries might want to create similar arrangements with larger EU-countries.
Land and Zone administration
Social justice is important to avoid long-term problems. The land for the proposed Zone must in a socially just way be transferred from farming to a Zone Fund or similar company, which will set-up and administer the Zone. The Zone Fund (or company) must have part-ownership of the African state, perhaps part-ownership or a special obligation to former farmers or village collectives which delivered the land, as well as equity ownership from foreign private Zone-investors (for example pension funds). The Danish state should participate and act as a sort of broker to help bring all parties together.
State-to-state relations can be good for the general public and all private parties. It can motivate the social responsibility of foreign private companies acting in the country of operations. It can also help protect investors acting in good faith in case of legal injustice or other turbulence.
The land should preferably not be resold but only rented out, for example for 30 years at a time – perhaps with a lease-hold transfer right (incl. buildings). New tenants may pay a higher rent, as the land value increases. Public housing and shops should be constructed, owned and let to families and individuals. A local food-market and/or food-logistics-chain for farms around the Zone will be established. Rent from export companies could (should) be in Euro, and rent from public housing and shops should be in local currency. These details should be planned. Such an arrangement could give the Zone a rising rental income, and thus the Zone will benefit from the nearly inevitable value-increase of the land over the long term. Worker skills (for instance in quality, machine use, procedures or even IT) can be trained by the Zone, paid for by the private companies. This way both companies and workers earn more and stay competitive over time. Win-win. Denmark has a tradition for that, which can be used.
The rising income from rent will be used by the Zone for better housing, infrastructure and services (perhaps including security) – plus expansion of the Zone-area or setting up a new “sister-Zone”.
This model could pay-out foreign Zone-investors over time at a reasonable and perhaps pre-fixed price, so that the African national or local government could take-over the Zone after a number of years, without being forced to pay foreigners out by means of public funds.
The African host country undertakes to implement necessary special legislation. Necessary stability is ensured by the host country with possible Danish-EU support. A law on Special Economic Zones exists in India – such an existing law should not be copied, but used as a reference for inspiration and practical experience. Learning from India and China’s wide experience, the Danish state could work with the African state to formulate a Special Zone Legislation there. The Special Zone Legislation should balance all stakeholders' needs, including the need for good administration & governance, careful (international) supervision, auditing and a staffing-committee to minimize corruption.
Zone-administration must be kept lean and efficient – not become “swollen” up with inefficiency and nepotism. This is VERY important for success.
The framework should facilitate a public-commercially balanced Zone development for decades to come. This model could give foreigners investing in the Zone development a rather safe pay-back. More safety for investors translates into lower capital costs for investments in Africa.
Start-up
Once state-to-state cooperation is established, the Zone plan is designed, the legal framework is defined, and the investor-group created, land-rights have been obtained, communicated and a fair compensation scheme laid out, and an operating plan agreed upon, the Zone Fund will be created with an initial amount (the rest to be supplied in time as needed according to prearranged agreements).
The Zone Fund in cooperation with the African state, the EU, Denmark, and public and private participants will then sell rental-contracts to private EU, Danish and international companies wanting low-cost production in Africa, at a well-managed and adequately serviced location with reliable communication (air, land and sea) and constantly increasing labor skills, facilities and infrastructure.
Like when you have projected a large “shopping-mall”, and enter into agreements with the public, with investors and executives, you will want to rent out as much as possible of the planned areas beforehand, before construction. Here the project is just not in greater Copenhagen or Rome, but in Africa.
Taxation and financial rules
The primary objective of creating Special Economic Zones is to create business-friendly centers of growth. Tax, customs, administrative procedures and bank-rules should always be business friendly – but this is a general issue for whole countries, not just for Special Economic Zones. However, to make a Special Economic Zone concept complete, this must be in place too.
Especially Ireland, Switzerland, Singapore and China including SAR Hong Kong have a lot of insights in this domain, which should be involved for setting up rules to attract stable international business (including banking) to Africa.
Currency and banking rules must be designed carefully to attract international business, keep banking secrecy, while at the same time protecting the stability of the developing African economy.
Traditional Development Assistance - and “Stabilization”
Some have proposed that official development assistance should be diverted to business credit guarantees and the like – this, however, is not a good idea.
Traditional development assistance can complement private-public partnership for private Zone investments in two ways: First, traditional development assistance can strengthen education and other basic functions. Second, traditional development can help those poor townships and villages who are not (yet) benefitting from economic growth. Humanitarian Aid can help get society up and going again, if a mudslide, epidemic, drought, conflict or other catastrophe occurs.
Traditional development assistance with health care, education and humanitarian aid help stabilize the society, prevent hunger, epidemics and civil strife – and can strengthen education and self-governance. This way, traditional assistance can help to bring about the preconditions for making the country attractive for business investments, thus making economic growth durable, and shorten the time until the country is rich enough to provide these services itself.
So called security “stabilization” is a problem. Potentially, it can help to create or keep a peace, where business and economic growth can prosper. This, however, has too seldom been demonstrated in practice. USA “security” was a disaster for Nicaragua. In Afghanistan, combined military-development projects have largely disappointed. The western “stabilization” bombing Libya simply made the country collapse. A totally new ideology and approach is badly needed, otherwise Africa will risk more destruction than “stabilization” this way.
Security may eventually have to be one of the services to be delivered by the Zone, and Denmark and other EU countries have competence and capacity to assist – but better concepts are needed.
Many City-Zone investment projects with Africa
When the first Zone project is a success, the program must be expanded and adjusted to several African countries, in cooperation with EU and other countries. Initially, the Zones will be situated at Africa’s coast, but development corridors along the high-ways will soon create links to new Zones inside Africa.
First and foremost, we must establish cooperation from the EU and other countries, the African Union, the UN, the World Bank, the African Development Bank and the International Monetary Fund, the OECD, and the World Trade Organization. China, India and the ASEAN-countries have a lot of needed experience (and capital to invest).
Establish the program as an EU project together with Africa. Denmark will work with France, Germany, Spain, Portugal, Italy and all interested countries in a partnership with Africa.
Let us not just talk - but agree on steps to put this into action.
Karsten Riise
Partner & Editor
CHANGE NEWS &
CHANGE MANAGEMENT
