Why the wealth of Africa does not make Africans wealthy

Story highlights

  • The book 'The Looting Machine' documents resource extraction across Africa
  • Resource dependency is often linked to repressive regimes
  • Author demands reform of offshore banking system exposed in 'Panama Papers'

(CNN)Katanga province in the Democratic Republic of Congo is blessed with enormous natural wealth, including vast deposits of precious minerals such as diamonds, gold, and tantalum.

Katanga saw a spectacular mining boom around the turn of the century, when President Laurent-Desire Kabila and then his son Joseph licensed international mining companies to tap its treasures.
This arrangement generated riches for the Congolese elite, and vastly more for the prospectors, but offered little to the poverty-ravaged population. From 1999 to 2002, the Kabila regime "transferred ownership of at least $5 billion of assets from the state-mining sector to private companies under its control... with no compensation or benefit for the State treasury," a United Nations investigation found.
    The bonanza coincided with a ruthless crackdown on dissent. In 2004, a small, mostly civilian group took over a mine operated by the Australian firm Anvil Mining in Kilwa village, protesting that the company was making huge profits without rewarding the local workforce.
    According to a UN report, the Congolese army crushed the uprising and killed around 100 people, many by summary execution.
    Workers extracting cobalt from a lake in Katanga province, DR Congo.

    Modern colonialism

    The combination of staggering wealth, rampant violence, and abject poverty in DR Congo is no coincidence, but part of a pattern causing devastation across Africa, according to Financial Times investigative journalist Tom Burgis.
    In a new edition of his book The Looting Machine, the author probes the paradox of "the continent that is at once the world's poorest and, arguably, its richest."
    Burgis, a former correspondent in Lagos and Johannesburg, finds a wide variety of kleptocrats and rackets over his travels through dozens of resource-rich countries. But a common thread is that the wholesale expropriation of resources during colonial times has barely slowed through the post-independence era, albeit with new beneficiaries.
    "Western governments are not supposed to wield commercial and political power at the same time, and certainly not to use one to benefit the other," says Burgis. "In colonial states...The British or Portugese would cultivate a small group of local people who would fuse political and commercial power to control the economy."
    "When the foreign power leaves, you are left with an elite that has no division between political and commercial power. The only source of wealth is mines or oilfields, and that is a recipe for ultra-corrupt states. Somewhere like Nigeria, an 'extractor elite'...wanted to draw to itself the rent that oil and mining resources generate."
    Burgis cites another colonial hangover in the continued presence and power of oil and mining firms.
    "The multinational companies hold enormous economic and political power in post-independence African countries," he says. "In this way, there is a pretty straight line from colonial exploitation to modern exploitation."
    British businessman Cecil Rhodes (center) founded the De Beers diamond company in South Africa, implicated in colonial atrocities.

    Fueling oppression

    The ability of governments to rely on resource revenue leads to corruption and oppression, Burgis argues, as they are not accountable to their people through a social contract based on taxation and representation.
    He cites Angola, which earns almost half of its GDP from oil, as an example of government as "a service for the elite." A 2011 IMF audit revealed that $32 billion disappeared from official accounts between 2007 and 2010, a quarter of the state's income.
    The Angolan elite rejects accountability and does not tolerate any challenge from the public, Burgis adds, recalling the recent case of activists being jailed for a public reading of a pro-democracy book.
    "Government can behave that way if it doesn't need the consent of its people," the author says.
    Angola has taken steps to address such criticism in recent years, with the 2012 election deemed "generally free and fair" by neutral observers. But human rights groups attest that oppression remains a fact of life.
    Garbage piles up as so little of Angola's wealth trickles down to the communities.

    Secret deals

    The growth of offshore banking in the late 20th century created new opportunities for resource tycoons to cover their tracks, a practice laid bare in the Panama Papers.
    Israeli businessman Dan Gertler was an early pioneer. After forging a close friendship with DR Congo President Joseph Kabila, he was granted a near monopoly on exporting the nation's diamonds, and quickly became a billionaire. Gertler routed the cash through an elaborate network of offshore accounts in tax havens, keeping the details of controversial deals secret.
    "In the case of African resource deals, offshore funds have been shown to conceal questionable transactions," says Burgis. "In the 1980s, bribes were literally cars full of cash and you handed the key to the official you were trying to bribe."
    "Bribery now is much more sophisticated, and has become harder to define as bribery if it's (through) offshore transactions or people being given equity shares in offshore companies...You have to crack open a lot of offshore secrecy to see the conflict of interest that lies at the heart of them."
    The era of global finance has opened African markets to a new generation of mysterious traders. Burgis spent years on the trail of elusive Chinese businessman Sam Pa, who has cycled through multiple aliases while making deals across the continent from Angolan oil to Zimbabwean diamonds. Pa is believed to lead the secretive Queensway investor group, and Burgis claims he has represented the Chinese state, although the government denies this.