Cinderella and Her Three Sisters

The investment community regards Kenya, Uganda, and Mozambique as the economic darlings of Africa. All are located in the Eastern part of the continent, the next region on my global itinerary.

Up-close, however, these so-called darlings turned out to be duds. Uganda had become entangled in the war with the Democratic Republic of the Congo. Kenya, once the jewel of Africa, was experiencing electricity and water shortages; its roads and infrastructure were falling apart. Even more disappointing was Mozambique.

For several years now, Mozambique has had one of the fastest-growing economies on the African continent. The recent flooding there represents a setback but only a temporary one. Tanzania, meanwhile, is viewed as a socialist experiment gone awry. Its economy hasn’t captured much interest on the part of the global investment community.

Those, at least, were the thoughts that occupied my mind as I left South Africa to tour the nations of eastern Africa. What I discovered upon arriving in Mozambique, however, was quite a different story.

As recently as 1992, Mozambique was one of the poorest countries in the world, the victim of a devastating 16-year civil war. But when it achieved peace later in 1992, the economy began to rebound. During the past three years, its gross domestic product expanded at an annual rate in excess of 10 percent. Foreign investment poured into the former Portuguese colony as the government privatized more than 900 enterprises. Inflation declined, and foreign exchange rates stabilized. A stock exchange, Bolsa de Valores de Mozambique, recently opened in the capital city of Maputo. Mozambique became a sparkle in global investors’ eyes including mine. I was fully prepared to invest when I arrived.

As I looked closer, however, I learned that a huge portion of Mozambique’s economy is propped on the stilts of foreign aid and rising borrowings. Per capita GDP was $80 in 1997, for example, while total aid equaled $48 for each of the country’s 19 million residents. The aid came from groups like the World Bank and the International Monetary Fund as well as from foreign governments and charitable organizations. Mozambique received $3.7 billion in debt forgiveness in 1999, but still its total external debt exceeded $6 billion.

Growth based on handouts is, of course, rarely, if ever, sustainable. Recall the old adage about giving someone a fish as opposed to teaching the person how to fish. While touring the countryside, I saw few signs of vigorous economic activity. Much of the new money and wealth is centered around the South, near Maputo. The northern countryside, by contrast, is very poor. Roughly 70 percent of the population there lives in poverty. Skilled labor is in short supply. I’d have a hard time calling some of the paths I drove on roads.

Corruption is also a serious problem. I heard stories of extortion and bribery by local officials, who make businesspeople pay for permits and licenses. In the North, I was stopped for speeding and had to pay a fine of $65, nearly a year’s salary for many residents. He matter of factly explained “We get our money from white foreigners”. Later, when he noticed we had a video camera, the cop told us he was going to have to confiscate it. No reason was given; he just wanted it. I’ve been in 74 countries, many of them former communist regimes, and nothing like this had ever happened. Finally, after some pleading, the policeman agreed just to take the tape. I told him he could look at it to see that there was nothing controversial on it but he wanted nothing to do with us any more. The cop pocketed our fine and walked away with our video tape.

As we were leaving the country, a border guard insisted that we buy automobile insurance for our cars. I said “thanks, we’re leaving” and told him we didn’t even have a visa to come back. He said we couldn’t leave until we had bought 30 days worth of insurance for $50. I insisted that I was only going to be in the country for another three minutes but he didn’t care. He just saw us as rich foreigners who he could exploit.

I drove through the flood areas in the South, and the scene was devastating. Whole villages had been swept away. The national highway, which links Maputo to the rest of the country, is impassible in certain areas. At least 500,000 people were displaced. More than 20,000 head of cattle disappeared, and more than 500 schools were seriously damaged.

Still, the television news made it look as though the entire nation of Mozambique was underwater, not just a small part of it. I couldn’t help wondering if Mozambique’s government was actually encouraging the bleakest possible story, reflecting the national addiction to foreign largess. Before investing one penny in Mozambique, I would have to be convinced that it had broken the habit.

North of Mozambique, I came across another country that I do think is worthy of investment: the formerly socialist nation of Tanzania. For nearly three decades, Tanzania was run by Julius Nyerere, a socialist liberator who became prime minister and, soon after, president when the country gained its independence from Britain in 1964. (Prior to its liberation, Tanzania was known as Tanganyika.) Unlike many of the leaders who came to power in post, colonial Africa, Nyerere wasn’t corrupt or greedy, just overly idealistic. He tried to run Tanzania as a socialist experiment, encouraging communal living and ujamaa, the Swahili word for cooperation and self-reliance. He promoted Swahili as the national language, hoping to bridge the barrier between the many tribes of the country. He nationalized almost every industry.

Nyerere was an honorable man. He preferred the title mwalimu, or teacher, to president. He never received more than $8,000 a year in salary. He promoted education and literacy. In fact, Tanzania has the highest literacy rate of any African country. In 1979, Nyerere and his army helped overthrow the infamous dictatorship of General Idi Amin in Uganda.

Unfortunately, Nyerere’s social experiments did little for Tanzania’s economy. During his tenure as president, the economy shrank, on average, half a percentage point a year. Tanzania’s once thriving agriculture and mining industries went belly-up under strict price controls and government mismanagement.

Nyerere stepped down as president in 1985, although many believe he continued to rule the country from a distance for years. In 1995, the first multi-party elections took place, and a new leader, Benjamin Mkapa, a former press secretary to Nyerere, became president. Mkapa has moved the nation toward a free-market economy. Driving through Tanzania, I saw signs in English encouraging foreign businesses to invest in the country. Billboards touted franchise opportunities with cellular phone companies and ways to invest in electric utilities. There’s even a pop song by local singer John Komba about the benefits of privatization.

Tanzania’s GDP has been increasing since 1997: Growth was just over 4 percent in 1999, and economists expect it to exceed 5 percent this year. Inflation is falling, and the trade deficit is shrinking. Foreign currency reserves are up. Among the 23 countries listed in the World Economic Forum’s Africa Competitiveness Report, Tanzania was the leader in terms of direction and extent of change between 1996 and 1999. Although foreign aid from governments and other sources has played a significant role in rebuilding the economy, it is only 20 percent as large as GDP.

Mkapa is making better use of the country’s vast agricultural resources, including coffee, cotton, and tea. Those were thriving industries before independence. I met two Italian brothers whose family had been farmers since 1931. They showed me a map of their region’s coffee farms, nearly 300, before the socialists came to power. Under socialism, farmers were required to sell their coffee at a fixed price to the government. The bureaucrats then resold the coffee on the open market and pocketed the profit. With reduced financial incentive, all but six of the coffee estates closed. Under recent new policies, some of the farms are opening again. Today, agriculture accounts for 50 percent of Tanzania’s GDP and employs about 80 percent of the population.

Last year, Tanzania had the highest level of international investment in mineral exploration of any nation in this resource-rich continent. Tanzania should soon be one of the three largest producers of gold in Africa (South Africa and Ghana are the others), with annual production rising to 2 million ounces by 2003. I am still not optimistic about the price of gold, but Tanzania’s deposits are near the surface, so the production costs are low.

Tourism is also thriving and accounts for nearly 16 percent of GDP. In fact, the number of tourists jumped from 482,000 in 1998 to 627,000 in 1999. Kilimanjaro, of course, is the main attraction. It is Africa’s tallest mountain, which Ernest Hemingway helped to make famous. You don’t need to be a professional to climb it, though getting to the top isn’t a simple stroll either. I’ve run three New York City marathons, yet I was never as out of breath as I was while climbing the last 500 meters of Kilimanjaro.

There are some of the best game parks in the entire continent, including the Serengeti National Park and Ngorongoro Crater, a conservation area stretching across 265 kilometers of northern Tanzania. It’s an incredible habitat, 600 hundred meters deep, where the animals can’t leave. Unlike game parks in Kenya or South Africa, we never had to worry about not seeing something one day. Every day we saw dozens of lions and zebras and elephants.

Then there’s Zanzibar — the fabled island off the coast. Zanzibar has long been a focal point for trade for three continents. The Arabs and the Asians have been coming for centuries. Europeans used the term Spice Islands because of all the spices produced there. The ruler of Zanzibar needed help surviving in the early 1960’s so he turned to Tanganyika. The subsequent deal kept him in power, but joined Zanzibar to the newly independent and renamed Tanzania.

Most of Africa’s borders are artificial and problematical enough which lead to many of the continent’s current problems. The whole Zanzibar situation reflects this situation in miniature. The island has an entirely different history, culture, and outlook from the mainland. Tanganyika is Christian, agricultural, and African while Zanzibar is Muslim, trading/merchant, and Arab. While these are oversimplifications, you can see how different they are. There is strong separatist movement as Zanzibar wants out. The last election was so rigged that even the international observers had to call it a sham. The mainland spends huge amounts trying to maintain a union which should never have occurred in the first place. This source of tension and expense will certainly eventually end in separation sooner or later. I would hope everyone involved would see reality and work toward a speedy separation so both could get on with the development of each. Tourists are already rediscovering Zanzibar; it can certainly survive on its own.

Unfortunately the Zanzibar situation is reflected all over Africa. Europeans carved up the continent at the Congress of Berlin in 1884 paying no attention to historic, ethic, religious, linguistic, economic, or national realities. These adsurd borders are a, if not the, major source of Africa’s problems today. It would be wonderful if someone could call a new Congress of, say, Congo and redraw all the borders. Then all of Africa could get on with it.

There’s certainly room for entrepreneurs. I met an Indian man who had come to Tanzania and built cashew processing plants. Cashews have long been a major industry in the country; in fact, Tanzania now supplies a quarter of the world market. Still, bringing cashew production back to its pre-nationalization levels has taken some work. All the production facilities that had been in existence had pretty much been shut down or gone out of business during Nyerere’s regime. The raw nuts had to be shipped elsewhere for processing. Wisely, investors are coming in and reworking the system. The man I met had hired dozens of women to work at his plant and was now making a fortune.

There is a new stock market in Dar es Salaam, the capital, but foreign investors cannot as yet invest directly in the three Tanzanian companies with public shares. That should change soon. Meanwhile, the Presidential Parastatal Sector Reform Commission, a group that promotes privatization in Tanzania, offers an introduction to investing in the country and lists opportunities on its Web site (www.psrctz.com). I can’t vouch for the site’s specific content, but I do have high hopes for Tanzania — she is Cinderella compared to her east Africa sisters.