PoliticsPress ReleaseCan natural capital accounting come of age in Africa?

Tue,24Jan2017

Posted on Wednesday, 25 June 2014 19:29

Can natural capital accounting come of age in Africa?

By Patrick Bond

 The depletion of minerals costs South Africa 9 percent of its gross national income. Photo©ReutersIn early June, a University of Pretoria conference at the Governance Innovation Centre, keynoted by Indian eco-feminist Vandana Shiva, contemplated how to go 'beyond GDP'. The current system of economic bean-counting is terribly inappropriate for a continent 'rising' in rhetoric but, in reality, being looted at a breakneck pace.

As the Pretoria host, Prof Lorenzo Fioramonti, author of the 2012 book Gross Domestic Problem, explained, "Gross Domestic Product focuses exclusively on market activities –that is, present income and production flow – whereas alternative measures of inclusive wealth highlight the importance of stocks of assets and their changes over time. The politics of GDP makes countries blind by rewarding short-term consumption and wholesale exploitation of natural assets at the expense of social justice and sustainability."

We should use natural capital as a red light to destruction, not as a green light - Vandana Shiva

The head-in-sand, ostrich-mimicking economists and financial journalists who use GDP without correction probably aren't even aware that the figure does not include resource depletion, unpaid women's and community work, pollution, loss of farmland and wetlands, family breakdown and crime.

There are many substitutes for GDP, and one – the 'Genuine Progress Indicator' – shows a substantial decline in world welfare, from around $36 trillion to less than $10 trillion in 2005, once these corrections are made.

Africa is hardest hit by two of these corrections – resource depletion and white collar crime – and so any fantasy of 'Africa Rising' must be completely rethought once we recalculate. Regarding crime, as University of Massachusetts economist Leonce Ndikumana has shown, more than US$1.7 trillion was looted from Africa through Illicit Financial Flows (IFF) not tracked through GDP from 1970-2010.

According to Simon Mevel, Siope Ofa and Stephen Karingi from the UN Economic Commission on Africa, IFF includes "Corruption, which is the proceeds from theft and bribery by government officials; Proceeds from criminal activities, including drug trading, racketeering, counterfeiting, contraband, and terrorist financing; Proceeds from commercial tax evasion mainly through trade mis-pricing and laundered commercial transactions by MultiNational Corporations (MNCs)."

As the three specialists concede, the problem is getting worse, with trade mispricing alone rising from less than $30 billion a year before 2006 to more than double that level in the subsequent four years.

The NGO Global Financial Integrity lists five African countries as having lost the most to IFFs during the period 1970-2008:

1Nigeria $217.7 bn
2Egypt $105.2 bn
3SouthAfrica $81.8 bn
4Morocco $33.9 bn
5Angola $29.5 bn

In South Africa, misinvoicing has become a major national controversy. Dr Dick Forslund, a Swedish economist based at Cape Town's Alternative Information and Development Centre, recently questioned how the big MNC mining houses could fail to get market-related prices during international platinum sales, which in turn meant they were underpaying their own books by at least $1.5 billion over the last decade.

The firms denied it, and as if on cue, African National Congress (ANC) general secretary Gwede Mantashe immediately launched a paranoid attack on Forslund, who was assisting the Association of Mineworkers and Construction Unions (Amcu): "The articulation of the Amcu position by white foreign nationals signals the interest of these foreign forces in the destabilisation of our economy."

Mantashe did not mention ANC deputy president Cyril Ramaphosa, for many years a 9 percent shareholder and board member of Lonmin, the London firm once run by Tiny Rowland, who was 'the unacceptable face of capitalism' according to then Tory prime minister Edward Heath in 1973.

Lonmin's Marikana platinum operations became infamous in August 2012, because of what appears now as a pre-meditated massacre that took place the day after Ramaphosa sent emails to the police and mining minister upgrading a labour dispute to 'dastardly criminal'. The police shot 34 dead, many execution style.

In the same spirit, Pretoria's diamond valuators have winked and nodded while DeBeers apparently mispriced US$2.83 billion from 2004-12, according to Africa Report columnists Sarah Bracking and Khadija Sharife.

These are just some of the reasons why in the country that PricewaterhouseCoopers recently reported was the world's worst case of corporate fraud, South Africa, 'natural capital' should be carefully counted. Otherwise, the mining and oil MNCs will loot us blind.

Two years ago, the Gaborone Declaration on Natural Capital Accounting was endorsed by ten African governments: Botswana, Gabon, Ghana, Kenya, Liberia, Mozambique, Namibia, Rwanda, South Africa and Tanzania. The reason: GDP has 'limitations as a measure of well-being and sustainable growth.' Instead, natural capital should from now on be included in 'national accounting and corporate planning.'

Even though the World Bank has traditionally lined up in favour of corporate looting of Africa via its 'export-led growth' strategies and dogmatic philosophy of economic deregulation, several Bank staff in the 'Wealth Accounting and the Valuation of Ecosystem Services' group played a major role in the Gaborone Declaration. Their view of 'adjusted net savings' as an alternative to GDP is instructive.

Wear and tear

There are four steps to understanding changes in wealth. Total savings should be discounted first for wear and tear on fixed capital (-); second for 'human capital' investment in education (+); third for natural resource depletion (-); and fourth for pollution (-).

For Africa as a whole, these four corrections pushed the rate at which wealth accumulated in 2008 from 17 percent of national income, down to -7 percent, mostly because of resource depletion, according to the Bank's The Changing Wealth of Nations.

To take one example, Zambia, the savings rate of 26 percent should be discounted for wear and tear on machines worth 11 percent of national income; while education spending adds 2 percent; depletion of copper subtracts 20 percent; and pollution subtracts another 1 percent. In a given year, that leaves a typical Zambian 3 percent poorer on December 31 than when she woke up on the prior January 1.

To take another example, in relatively more industrialised South Africa, the depletion of minerals costs the country 9 percent of its gross national income and as a result, the net decline in the average South Africans wealth after a typical year is $245.

Why do these depressing counting exercises? One reason is to make the case for 'ecological debt' in courts of law. For example, of Nigeria's recent $11.5 billion claim against Shell for a 2011 oil spill, more than half is meant to compensate fisherfolk.

Fine and ban

The liability owed to silicosis-afflicted mineworker victims of Anglo American and other gold mining houses may reach $900 million. Gencor and Cape PLC had to pay £45.5 million a decade ago to settle South African asbestos lawsuits after they lost their last appeal in the UK House of Lords.

Similar arguments should be made against the MNCs most responsible for what the UN calls 'loss and damage' due to climate change. Or against companies like Lonmin that remove Africa's natural resources, corrupt its governments, despoil the landscape, wreck workers' health, establish untenable social relations such as the migrant labour system, and return a pittance to South Africa.

Ideally, over time, this strategy would develop as 'fine-and-ban', so that as a corporation makes an egregious error, it is fined punitively for the damage done, and then sent packing. Fatally damaging processes such as asbestos mining should then be consigned to the dustbin of history, and indeed in that case, that lawsuit bankrupted Cape PLC.

To be sure, there is a danger that natural capital accounting will become, instead, a 'fee' for pollution; the damage continues, but with an ongoing payment. The strategy known as 'Payment for Ecosystem Services', promoted by the more neoliberal of 'green economy' advocates, represents this sort of parallel danger: commodifying the environment.

An example of an unworkable 'neoliberalised nature' strategy to address climate change is carbon trading, yet South African Treasury bureaucrats last month endorsed a policy move in that direction – which climate justice activists are opposing.

The distinction between counting for damage control (a fine and ban) and counting for market-making (a fee) should be made. As Shiva put it, 'We should use natural capital as a red light to destruction, not as a green light.'

To that end, there is a much stronger ecological, political and moral case yet to be made based on Africa's declining natural capital accounts. Thanks to various kinds of Resource Curses, Africa is like a household whose drunken nephew finds the key to the cabinet that holds the family silver (natural capital), at which point he loots the valuables, sells them at a fraction of their worth to a sleazy foreign buyer, buys booze, drinks away the proceeds and then pisses all over the floor back home.

By counting the natural capital outflow and related illicit financial flows, at least the family is in a position to learn about, and hopefully halt, the looting – even if that means putting the nephew into a treatment centre. The equivalent act for a responsible society in Africa, while these Resource Curses persist, is to leave the minerals and petroleum in the soil – at least until the continent's wealth is no longer the cause of its systematic poverty.

Patrick Bond is professor at the University of KwaZulu-Natal, where he has directed the Centre for Civil Society since 2004. His research interests include political economy, environment, social policy, and geopolitics. He is author of Looting Africa (Zed Books).



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