SOUTH AFRICA: MOELETSI MBEKI SAYS DONORS HOLD THE

UNCLAS SECTION 01 OF 02 PRETORIA 001158 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EINV EFIN PGOV EAID PINR SF SUBJECT: SOUTH AFRICA: MOELETSI MBEKI SAYS DONORS HOLD THE KEY TO ECONOMIC REFORM IN AFRICA (U) This cable is Sensitive But Unclassified. Not for Internet Distribution. ¶1. (U) Summary. Donors hold the key to economic reform in Africa, says Moeletsi Mbeki, businessman, political analyst, and brother of South African President Thabo Mbeki. In a recent address, Mbeki said that donors leverage more power than Africa's military or political elite. Mbeki explained that South Africa has succeeded economically relative to the rest of Africa due to historical investment in areas such as infrastructure, legal systems, and education. He also credited the long-standing roots of the African National Congress. Mbeki described most of sub-Saharan Africa as "pre-industrial revolution societies" under siege from the dominant political elite. As a result, Mbeki offered investors a bleak description of currently doing business with "incompetent and corrupt" African governments. End Summary. Donors in Charge -------------- ¶2. (U) Donors are the biggest agent for economic change in Africa, according to Moeletsi Mbeki, businessman, political analyst, and brother of President Thabo Mbeki. In his March 8 address to the South African Institute of International Affairs (SAIIA),Mbeki repeatedly stated that donor countries are the ones with the most leverage over African countries, far more powerful than Africa's military or political elite. Mbeki cited examples of donors bringing the end to one-party states in Zambia, Malawi, and Kenya. He also noted donor-driven privatization successes of railways and telecommunications. Mbeki went on to say that the New Partnership for Africa's Development (NEPAD) is "a South African invention to pass the buck back to Western countries." He views NEPAD as another "aid window" similar to the UK's Blair Commission. Mbeki said that South African businesses want to bring about change in Africa, but that South Africa must first become a donor itself for this to happen. Why is South Africa Different? -------------- ¶3. (U) Mbeki opened his address comparing the economies South Africa and the United States, and explaining what sets South Africa apart from the rest of Africa. He stated that South Africa generates about 21% of Africa's GDP with only 6% of its population while the United States generates about 22% of the world's GDP with only 5% of its population. In summary, he emphasized the point that South Africa's economy is to Africa as the United States is to the global economy. ¶4. (U) How did South Africa garner this dominant position on the continent? Mbeki listed a number of reasons, but the main differences boiled down to what was invested by South Africa's colonial powers and the National Party under apartheid. The level of investment in agriculture, transportation, financial systems, legal systems, media, education, health, and social services all set South Africa apart from the rest of Africa. For example, Mbeki says if South Africa did not have its long-standing legal system protecting property rights, the country could be "like Zimbabwe" and denied the economic growth it is working to achieve. He said that South Africans often focus on what they were denied in the past versus recognizing what was actually invested and is helping them out today. ¶5. (U) Mbeki also credited South Africa's relative success to the African National Congress (ANC)'s history. The ANC has deep historical roots, which is something that most African political parties cannot claim. Other African countries do not have a united working class to demand governance, nor any ruling class that aligns its objectives with the majority of its citizens. ¶6. (U) Mbeki described most of sub-Saharan Africa as "pre-industrial revolution societies." He stated that the political elite dominate the private sector and that most countries lack the basics, such as investment in infrastructure and secure property rights. The African elite do not even have confidence in their own countries, as Mbeki pointed out that nearly 40% of Africa's wealth is held outside of the continent. This percentage is stark in comparison to 10% in Latin America, 6% in East Asia, and 3% PRETORIA 00001158 002 OF 002 in South Asia. According to Mbeki, apartheid's strict laws against capital flight are to thank for containing most of South Africa's wealth within its borders. Bleak Outlook for Doing Business in Africa -------------- ¶7. (U) Mbeki offered a bleak picture of conducting business in Africa. In order to conduct business in Africa, Mbeki said that an investor must have patience and money and be willing to work with "extremely incompetent and corrupt governments." He cited various examples, mostly from Nigeria, of African political leaders offering him illegal business deals that would circumvent the banking system and favor those in power. Mbeki also mentioned an example where a company was forced to pull out of Kenya when those in power blocked its product distribution channels. While Mbeki himself continues to seek business opportunities in Africa, he said that the only people investing in Africa now are oil companies and countries such as China, India, Malaysia, and Saudi Arabia. Comment -------------- ¶8. (SBU) Moeletsi Mbeki has often made controversial comments about the benefits of colonialism to Africa. This speech highlighted some of the relative benefits that colonialism and the apartheid government brought to South Africa. Notably, Mbeki dismissed the effectiveness of NEPAD, one of his brother's championed causes to empower Africans to help bring upon an African Renaissance. One question Mbeki did not address was how donors should be more effective agents of change and how South Africa could complement current donor efforts. South Africa has increasingly expressed interest in becoming a donor partner on the continent, and is actually managing post-conflict reconstruction and reconciliation programs in a number of fragile states, including DRC, Burundi, and Sudan. On the other hand, questions remain about its capacity to manage its role as a donor. TEITELBAUM