LONDON – Central Africa has lately been attracting some unfamiliar attention. Discoveries of large mineral deposits and other opportunities have brought a chance to diversify investment beyond the dominant oil sectors of Equatorial Guinea and Gabon.
Cameroon is expected to attract $10 billion over the next few years to develop some of the most promising new mineral reserves in the region, while Equatorial Guinea is pushing infrastructure development. Elsewhere, BHP Billiton announced the discovery of an estimated 60 million tons of manganese in southeastern Gabon, while France’s AREVA is drawing up plans to build a large mine in the Central African Republic to exploit uranium deposits.
But “natural resources” and “Africa” is a combination that usually triggers alarm bells, and Central Africa is no exception. There are significant political risks related to the overlapping political and business interests of the region’s entrenched ruling elites, presenting headaches for investors concerned about their reputations. Corruption is rampant, and most companies are often forced to work with government-picked partners, over whom control is severely limited.
A United States Senate report released in February revealed flagrant abuse of state funds in Equatorial Guinea. The son of President Teodoro Obiang Nguema Mbasogo was reported to have hired US lawyers, bankers, and real-estate agents to move more than $110 million into the US between 2004 and 2008, using the money to buy a $30 million house in Malibu, California, a Gulfstream jet, and countless luxury goods. He is now the subject of a criminal investigation and faces charges of money laundering, bribery, and extortion. The report mentions other ruling dynasties in the region, including Gabon’s Bongo clan, which is also accused of abusing public funds.
Political risk and security of tenure present further obstacles to investors. Political interference in the private sector throughout the region means that most large business projects are carried out as joint-ventures with state-controlled companies (sometimes covertly headed by members of the ruling elites). This often implies illicit payments to obtain contracts or licenses outside official tender processes.
When regimes change, such contracts could come up for review, as has occurred in many other African countries. Such changes have been fairly rare in a region long dominated by “big men” such as Omar Bongo, Obiang, and Cameroon’s President Paul Biya. However, Biya’s advanced age raises serious questions about the potential fallout from a political transition and what such a transition might mean for existing contracts.
Ali Ben Bongo’s accession in Gabon showed that even sizeable challenges posed by a largely unplanned transition can be overcome, but in Cameroon the succession is likely to be less smooth. The potential for social unrest has been demonstrated on several occasions in recent years, while divisions along ethno-regional, linguistic, and civil-military lines suggest that any power vacuum at the top could be potentially destabilizing.
But there are some hopeful signs. The Economic and Monetary Community of Central Africa (CEMAC) recently named Equatorial Guinea’s Lucas Abaga Nchama to head its central bank, the Bank of Central African States (BEAC). He becomes the first non-Gabonese national to hold the post since the bank was set up in 1972. Leading positions at both CEMAC and the BEAC will now rotate among the six members – Cameroon, Chad, Gabon, Equatorial Guinea, the Central African Republic, and the Republic of Congo – potentially heralding greater regional integration.
The position fell vacant after senior officials, many of them Gabonese, were discredited in an embezzlement scandal that erupted in October 2009. Major fraud at the Paris office cost the bank around $28 million, showing the weakness of audit and control mechanisms. Nchama’s appointment represents a clear break with the past, and he claims he will be the man to shake things up.
But it remains questionable whether the region’s new faces can end the old patterns of mismanagement and abuse. A cleanup is needed to restore credibility, but prospects for comprehensive reform remain limited, given the history of poor accounting and transparency standards in most member states.
Nchama’s appointment was a success for Equatorial Guinea in its long quest to boost its influence in CEMAC. The country has plowed some of its oil money into increasing its contributions to the BEAC, and now reportedly provides 48% of CEMAC’s foreign-currency reserves. The strategy appears to have paid off. Given the Obiang clan’s implication in serious corruption and misuse of state funds, however, it hardly bodes well for regional reform.
With the possible exception of Gabon – where it is too early to assess the effectiveness of reforms proposed by the new president – most CEMAC governments are run by insular ruling elites that engage more in democratic window-dressing than in genuine political and economic liberalization. This style of governance provides ideal conditions for abuse of public office, which has led to endemic corruption. As is true so often across the continent, the watchword for would-be investors Central Africa’s resource boom should be caveat emptor.
Hannah Koep is a Senior Africa Analyst at Control Risks, an international business risk consultancy.
Copyright: Project Syndicate, 2010.