Are African billionaires a sign of progress?
In 2010, 388 of the richest people in the world had as much money as half of the world's population – more money than roughly three and a half billion people put together.
In 2014, it dropped to 80 people, and then in 2016 Oxfam confirmed that 62 people were richer than half of the entire world. Never before had the old adage been more precise: the rich are growing richer, and the poor are growing poorer.
This throws up a disturbing question: if more people are getting richer, how is it that more people are equally getting poorer? If more money is being made, why are these monies not going into people’s pockets around the world. The answer lies somewhere between the words “inequality” and “distribution”.
If any good observation is to be made, it is that billionaires are indeed a sign of economic progress. The most economically progressive countries of the world have the most billionaires. Big conglomerates are good for economic growth. The US and China combined have over a thousand billionaires. The African continent has fewer than 20, and Nigeria has only four Forbes documented billionaires.
A large, highly productive firm will be of more economic value than a thousand small firms.
The emergence of rich people in poor countries is not totally a bad sign. Individual firms matter, and large firms are essential for economic growth. A large, highly productive firm will be of more economic value than a thousand small firms.
Yet, if entrepreneurs and mega firms are historically the source of industrialisation, leading to rich countries, then why isn’t Africa profiting from the emergence of its billionaires? Again, the answer of course lies somewhere in how this wealth is distributed in Africa. The bulk of a billionaire’s bank statement most often hides truths in terms of unpaid salaries, low wages, zero insurance for workers, zero taxes to the government, and massive use of political connections leading to the distortion of government regulation and, incidentally, the absence of healthy economic competition.
Sadly, the process of creating those billions therefore does more harm than good to the economic ecosystem in Africa, and much more is lost than what is gained in the production of each billion. The economist Gabriel Zucman has calculated that as much as 30% of all African financial wealth is held offshore. This means an estimated loss of $14bn in tax revenues. A figure that would be enough to pay for healthcare for mothers and children, save the lives of over four million children annually, and employ enough teachers to get every African child into school.
Billionaire cronies constrain economic growth, while billionaires who aren’t cronies generally do not.
Another economist, Jan Svejnar, who, incidentally, ran for the presidency of the Czech Republic in 2008, makes a simple argument for why the existence of billionaires doesn’t necessarily translate into economic growth: you have to take account of how their billions were made. Svejnar categorises billionaires into two groups – those who would not have made it without political connections (i.e “political cronies”), and those who became billionaires because of their ingenuity, ability to innovate and willingness to take risks (i.e “the politically unconnected”). In other words, billionaire cronies constrain economic growth, while billionaires who aren’t cronies on average do not. Svejnar’s analysis helps us understand that the nature of wealth accumulation is a key to understanding why more billionaires often means more poor people, too.
But the benefits of having billionaires in the picture cannot be ignored. Aliko Dangote’s cement company in Nigeria alone employs over three thousand truck drivers across the nation – that’s essentially 3,000 direct jobs – with the ripple effect of cargo loaders and unloaders, dockyard workers, security operatives, supervisors, inspectors and engineers creating an income ecosystem that helps to balance income distribution across the country. The transnational nature of the company (operating across 10 African countries) also enhances cross-border trade and investment and improves Nigeria’s GDP.
Billionaires can do more. More than anything, they can help create more billionaires.
There are trails of billionaires that have set up mega organisations that have helped shift income inequality in a positive direction for Africans: the ShopRite Group, MTN, and Koos Bekker’s ingenuity with M-Net have each helped balance the drive for economic inclusion. But more can be done.
Billionaires can do more. More than anything, they can help create more billionaires. This can only be achieved through a healthy form of economic competition, adherence to government policies, partnership with small-scale organisations, investments in the area of human capital, and perhaps an investment into diversifying their country’s economy – Dangote’s refinery, if operational, will be the first privately and locally owned refinery in West Africa, potentially saving billions of dollars in scarce foreign exchange.
As all economic activity in Africa today is closely linked to politics, it is hard to see how business could survive without politics – or how a billionaire could emerge without politicking. A system that allows for inclusive economic growth, one that does not isolate young entrepreneurs from the value chain, remains the holy grail that could lift more people out of low income brackets.