In a more recent event (recorded January-March 2002), the South African government set up a commission of inquiry - the Myburgh Commission - into why the Rand slided so dramatically during 2001. The CEO of the South African Chamber of Business (Kevin Watkins) wrote to the State President (on 8 January 2002) that contrary to "popular causes" (such as the Zimbabwe situation, the slow pace of privatisation, and the Aids epidemic in SA), the real reason for Rand's dramatic depreciation may have to do with "dubious and peculiar share transaction" structured by the German bank, Deutsche Bank, in which the South African oil company, Sasol, purchased a German chemical company, Condea. The off-shore deal involved, among other transactions, "buy-back" of shares by Sasol, Deutsch Bank's dumping of rands in the domestic market because of its over-exposure at a time when the foreign bank was in a "monopoly situation to manipulate the currency", and the possibility of the Bank earning a "double wammy" if the shares are sold in the domestic market, leading to further capital outflows over and above about R6bn initial off-shore transaction. (See Financial Mail, March 29, 2002, pp. 24-25)

The Commission is still sitting at the time of writing, so not much more may be said at this point in time. However, one thing seems to be emerging. Sasol and Deutsch Bank may not have done anything "illegal". Technically speaking, this may be all within the new regime of "open door" policy towards foreign capital that the Government has initiated since it took power. The externalisation of South Africa's major companies is part of this "open door" policy. Foreign banks are not bound by South Africa's exchange controls, and institutional asset swaps are difficult instruments to monitor. As Stuart Theobald says:

Banks could and did trade in rand for short-term profit through exchange-rate fluctuations. The Reserve Bank chose to ignore this because it wished to be seen to be liberalising an attractive environment for investors. (Ibid, p. 27) It is not much of an encouraging story to relate, with the obvious lesson that the more African countries create an "enabling environment" to lure FDIs, the more opportunities it creates for even respectable banks to manipulate the foreign exchange and speculative market, to engage in dubious equity swaps, to externalise their funds, and to throw the domestic currency, balance of payments and the whole banking structure into a whirlpool of crisis that drags down everybody, as in Argentina, into the depths of its vortex.


D. NEPAD's strategy to lure FDIs
It is in the light of the South African and Argentina experiences (as also, the earlier experience of Mexico in 1994/95, and of East Asian countries in 1997/98) that we must assess the value of the following strategy offered by NEPAD on how to lure FDIs into Africa.

The first priority is to address investors' perception of Africa as a "high risk" continent, especially with regard to security of property rights, regulatory framework and markets. Several key elements of the New Partnership for Africa's Development will help to lower these risks gradually, and include initiatives relating to peace and security, political and economic governance, infrastructure and poverty reduction. Interim risk mitigation measures will be put in place, including credit guarantee schemes and the strong regulatory and legislative frameworks. The next priority is the implementation of a Public-Private sector partnership (PPP) capacity-building programme through the African Development Bank and other regional development institutions, to assist national and sub-national governments in structuring and regulating transactions in the provision of infrastructural and social services. The third priority is to promote the deepening of financial markets within countries, as well as cross-border harmonisation and integration, via a Financial Market Integration Task Force. Initially, this will focus on the legislative and regulatory environment for the financial system. (para 154)

The objective behind all this is to show to the investors that Africa is not a "high risk" continent, and that they can safely bring their money in, do what they want to do with it, and take it with them when they want it and how they want it. NEPAD, together with international institutions such as the World Bank, the IMF, the UNCTAD, and the international business community, including the Davos Global Economic Forum, have been busy since the floatation of the NEPAD, organising conferences and workshops in order to showcase Africa as a relatively "risk free" continent for FDIs. The high-point of this orchestrated drama is the G8 summit in Alberta, Canada, at the end of June 2002, at which, the NEPAD leadership is hoping that Africa would have been sufficiently marketed as a safe haven for FDIs in order to begin concrete and detailed "project" work, including privatisation of water, energy and transport services.

It is sad to see how little mainstream economists that have drafted the NEPAD document have learnt from history, or from the experiences of other countries in the third world. There is even a degree of innocent belief that FDIs will really come to Africa, that conditions of peace and security will be maintained in Africa, that "deviant" states like Zimbabwe (and others to come) will be disciplined so as not to scare FDIs away, that no demands will be made to write off (even illegitimate) debts so as not to send "wrong signals" to the owners of FDIs. In all this there is also a mystical belief that, somehow, FDIs are nameless, neutral, carriers of wealth and goodwill for Africa, that they do not have names like Deutsch Bank and Enron who are as greedy, culpable (even criminal) as any "corrupt" African leader, that the investors will finally acknowledge that Africa has been the "origin of mankind" and has nurtured the world for thousands of years with its rich resources and that now it is "payback" time.


E. Capital, Capital Goods and FDIs
Does the above argument lead to the conclusion that Africa, therefore, does not need capital? Of course, not. But there is need first to understand what is capital.

Often there is lack of clarity about what one means when one talks about capital or FDIs. There is often confusion between the two. Sometimes the two are confused with technology, or FDIs are deemed as necessary instruments for securing technology. It is these equations that evoke surprises when one tries to object to FDIs as a means to growth - "So you don't want capital!" or "So how are you going to get technology?" or "which country has developed without capital from outside?" are the kinds of reactions one evokes. Indeed, in the vast literature that has developed on FDIs over the last decade or so, there is very little attempt made to define either FDIs or its correlate, capital? What is capital? Is it a thing? Is it money? Is it a relationship of production?

There is need to distinguish between money and capital, and between capital and FDIs. A failure to make distinctions has created much confusion between both "experts" and policymakers, especially among developing countries. It is certainly the case with NEPAD. Money is basically a means of exchange and an accounting mechanism for storing accumulated assets. Capital is money when used in production with other factors of production such as labour power and land. But FDIs are more than money or capital. FDIs are a package of capital, technological knowhow, management specific to a particular type of production of goods or services, market knowledge and access, and contacts. The Economist is closer to the truth than many who use the term loosely to mean just capital. This is what it said:

The point about FDI is that it is far more than mere "capital": it is a uniquely potent bundle of capital, contacts, and managerial and technological knowledge. It is the cutting edge of globalisation. (The Economist, February 24, 2001)

So FDI, generally, is proprietorial. It is owned by a corporation or a bank, and it carries a premium. Usually, you accept it as a "bundle" or you don't have it at all. And with the bundle comes, usually, control over the domestic assets that are used for goods production or for services. In other words, FDIs are really a means for corporations to accumulate their wealth (stored value), and although they may leave behind certain immovable assets in the countries in which they are operating, generally, their capital is highly fluid and mobile. Also, there is often no real distinction between speculative or short term capital, and long term capital that is usually associated with the term FDIs. George Soros, the well-known millionaire who made his millions out of speculation, knows better than most that capital is extremely whimsical. Proprietorial capital, or FDIs, are the proverbial house of cards out of which it is risky to build ones economy, as Argentina discovered to the shock, and misery, of its people. If such shocks are spared to countries such as the United States and the European Union (although they too are not completely immune), then this has to do more with their power (including military power) than with capital as such. It is an issue that needs to be explored further.

The question of whether Africa needs capital is, in a sense, a meaningless question. For the real question is capital from where, for what purpose, and under what conditions. The first source of capital must be domestic. If a country like Nigeria externalises its entire savings, through legal or illegal means, then the first task is to plug the holes through which capital exits the country. Also, when soliciting capital from outside, it may be necessary to try to unbundle the FDIs package, if this is possible, and then to monitor and control its use carefully, for otherwise, a country can get into the kind of situation allegedly created by the Deutsch bank in South Africa, for example.

In trying to unbundle FDIs, India, for example, may want only the technology part of the FDI, if it can negotiate that part out of the FDI separately. By contrast, Uganda may want not only technology but also, in all probability, the management system and market access that go with FDIs. Every country has its own specific needs depending on what it already has, the level of development of its productive forces (including science, technology and management resources), and its own circumstances at a particular point in time. In other words, there are no "good" or "bad" FDIs outside of national policy, and in terms of hard negotiations with the owners of capital. For India, for example, to open the door to foreign management under the guise of FDIs could mean the destruction of its own management resources. For Uganda, it may not be an issue; or if it is an issue, it may not be in a strong enough position to negotiate with a large foreign Transnational Corporation (TNC). China, because of the vastness of its potential market, may be a unique case. But the proposition is valid even for a small country like Uganda. If, for example, the condition for entry of a big European textile company with all the modern and fully mechanised system of production in Uganda is that Uganda should first dismantle its old machinery and throw out hundreds of people out of job, then it is better that Uganda thinks twice about such a transaction, even at the cost of losing the FDI package with which the European company might entice Uganda. These are not (or should not be) matters that can be settled by the Uganda government or by the Reserve Bank of Uganda without proper consultations with the private sector and the trade unions.