Industrial co-operation and integration among African countries : possibilities for the establishment of African multinational industrial corporations (AMICs)

UNITED NATIONS

ECONOMIC AND SOCIAL COUNCIL

LIMITED

ECA/CMl/FCIA.5/WP/3

10 October 1978 Original: ENGLISH

u "3

ECONOMIC COMMISSION FOR AFRICA

Follow-up Committee on Industrialization in Africa

Fifth meeting

Addis Ababa, 8-10 November I978

INDUSTRIAL CO-OPERATION AND INTEGRATION AMON^ AFRICAN COUNTRIES:

Possibilities for the establishment of African Multinational Induatrial Corporations (AMICs)

(Agenda item 6)

TABLE OF CONTENTS

Page

Summary of the Report : 1

I. Introduction 4

II. The Needs and Justifications (Benefits) for Establishing

AMICs . 6

III. Examination of Existing Multinational Economic Co-

operation in Africa and Latin America 15

IV. Future Strategies and Modalities in Establishing AMICs .. 23

V. Learning Technology and "Teaching Companies" 37 VI. Recommendations on Policy Guidelines and Modalities for

Act ions , 44

Annex: Li3t of Countries Visited and Officials Contacted

This Document has not been edited.

This study was prepared for Wk by Mr. Merga Afeta former General Manager of Ethiopian Food'Corporation, Addis Ababa, Ethiopia.'

The views expressed in this paper are those of the author and do not necessarily reflect those of the sponsors of the Conference.

M78-2594

HCA/CMI/FCIA.5/WP/3 '

Summary of' the Report * -■■•■• ■*■ ^ ;__^~ • ; ' .. ...

' .i. The. fourth Conference of African Ministers of Industry held in

Kaduiia.in November 1977'resolved "that co-operation among African countries in establishing industrial co-operative arrangements and programmes should be pursued irrespective of differences in pplitical and economic systems". /

In -the light of this, the main objective of this report is to explore the. ]

possibilities and modalities for'developrae.nt of African Multinational

Industrial Corporations (AMICs), taking, into account the needs fqr 'control

over natural resources through collective self-reliance and development of manpower and technology.

"ii. All African countries have 'expressed the heed to establish basic, large-scale, and nationally integrated industries in "the field of agro- industries, chemicals, metals,1 engineering and construction materials.

But they have failed to realize their needs through national efforts alone*

because of the smallness of national markets, lack of finance, insufficient1 export opportunities, 'dependence on foreign skills and technology, imported -^

intermediate and capital goods, inadequate information on upstream processing

and "distribution of domestic raw materials, poof i^fr^structur^a vid because of dominations by transnational corporations (TNCs) in the control over financed

production, technology, marketing and distribution. . .

iii. Thus the African countries are only left with the alternative of ;; ';

establishing such industries jointly through AMICs. The establishment of ' "

AMICs could benefit African countries and accelerate industrialisation in'

the region. One or two AMICs would act as the nuoleui in the region for "the adaptation, choice and transfer of technology; development of manpower;

control over natural resources; creation of stable conditions for the supply of basic and strategic goods; creation of dynamic, self-sustained and regionally integrated industries; increase in employment and foreign exchange earnings; . strengthening knowledge on'the activities of' TNCs;.improving relations among African countries; organization of consultancy and'management services; promo tion" of standardization and .quality control1, and investing surplus funds in

dynamic sectors. • .'..'"'.

iv. In the past, both African and Latin American countries have, attempted to establish economic co-operation through free trade zores, customs unions', ""

common markets and economic unions. These attempts have been .frustrated by weaknesses in the definition of objectives' and institutional structures, narrow concept of equitable distribution of benefits, nationalism, competing

ideologies, personality involvements, external pressures and"too:much reliance

on foreign TNCs. Similarly African Miiltinatiohalr Corporatiqiis', like those."

of the East African Common Service Organizations, liave been weakened (with the - exception of Tazara Railway) because they were established or initiated, by

former colonial powers to serve their own interests, and failed to adapt themselves to the needs and objectives 'pf member States. ,

v. In establishing AMICs, therefore,.more emphasis should be placed ;"•

on new objectives and strategies. / Such an.approach has to avoid high level /

politics and ideologies^ and ■cpnc.entratei6niy)pn;pure business approaches. ',; . '.

The aims of member States could be.like thpse'of 'the' TNCs, based on "their

special needs and goals, eg. acquisition and/or"distribution of existing ahdJ

Page-2 v-

potential raw materials, intermediate, capital and finished- goods at. season ably stable prices over long periods of time; development"and"exploitation""' of new national and. regional, (resources; desires to diversify investment and trade partners;..and the need. to. expand and grow- In addition,. AMICs could be formed,,on th.e basis of..needs.-to. transform .economic dependence on the TNCs to .

regional inter-dependence (control over natural resources through collective

self-reliance)s calling, for ";joiniHpioneerB" or "growth-initiative'1, nation-;..

state building technological and managerial capabilities, developing joint market; power; and creating, new institutional machinery co .directly implement , long-term goals of.member States by making large-scale and .long-term qualitative

innovations and investments. . ... ..

, yi. It is much better if AMICs are established on a voluntary, basiSo Large membership and subregional approach should not be prerequisites^ The : mana^iswni; and operation of AMICs should be on purely business dealings, AMICs-Bhould preferably take pro jects ..in their mid-secondary stages, of pro duction, so as to give the possibilities, of subcontracting.components in ■- different countries and for. the development of .linkages », :. The establishment of. AMICs. through .existing national corporations could have the; advantage of building on existing,-experiences-and skillc, as well as avoiding high level politics and protocol. .- . - ..- ■ - ... ... ■ ■ f ■ ■ .

vii.-. 8ther modalities of co-operation among African national corporations are: cross-purchase of nominal shares, inter-corporation supply of inputs or outputsr interTcorporation agency .appointments in each other's country, joint purchase, and. sales arrangements including shipping, .-exchange of experts, shar ing common.training facilities, formation of inter-corporation councils, establishing common .quality, and standard controls and affiliates giving

common services to all- ... . . ... . .

viil- Apar.i. from large-scale investments, production, .distribution and marke.tingj one of t^e.major functions of AMICs is the development of technolo gical capabilities and skilled manpower. The latter is.more .important than resource endowments in the development process- Technology...is-.-an.:art embodied in skilled technicians having both long academic training and practical. ■-.•;■_• :- experiences in production process and taachine operations, i.e. the development -of. technology is inseparable from that of manpower. But such- development

couljt. be done, .as is the case with Japanese experience, only by conscious, and- deliberate efforts through consistent and co-ordinated, programmes ..with full- •■

social, political and economic will, determinations and, commitment,. ,; ... ..

. iXo .Generally, institutional.structures for manpower /development have -.:

been established in Africa- ^u^.^tr.aining institutes have: critical shortages, of training facilities (laboratories,, and workshops). Besides,, there -is no co-ordiaatiLon and co-operation. bei;wee^--"training institutec and industries.

More often such.scarce respur.ces .as. skilled manpower are being mis-allocated, large numbers of foreign experts^ aj^e ^ept for a long period, ofi^ime, and the

arrangements of local "counter-parts" to replace foreign experts is weak and ineffective* Recently, however.,...some,..dawn on the developmentj,j>f| manpower and

technology has.begun,±prapp.e^.^in^fHca. Thus proper, .care, should be taken

to avoici .pas,tr.mist^es,.^Viihat. the African .countries need, is. the will arxl : determinatipn"to commit, themselyes.^o^ translate statements o.fr .intents of their

needs anS.goals into'realivtiLee,*,.. i^lan and programmes should, be adhered to,-

■■.

/5//

".' • Page 3 - .

co-ordination and co-operation between training institutes and industries have to be strengthened, priorities must be defined and a proper.,-all o.cat.i on of skilled manpower should be introduced. There is also an urgent need for African countries to-revise "their laws on patents, trade marks ahdnaraes and designs in such a way as to allow national corporations, AMICs and indigenous engineers' and "technicians to : adapt an'.! develop technology. ' ■ ' '■ -'

x. Some multinational "industrial co-operation is being entertained,' and more interests have been indicated than were "expected. These co-operative developments started out of sheer neerl or desperation. But they may fail*

to go beyond meeting the immediate needs.of member States, and of long-terra growth strategy; and combine, production with the -.'development ■ and transfer of ■- technology.-, including technical and managerial skills. • There is also the absence of institutional mechanism which could act as a marriage broker in arranging multinational co-operation agreements between African countries.

The presence of such institutional mechanism could give more momentum to existing co-operative agreements'by injecting new and more blood to them .like new membership, new marketing arrangements, new sources of inputs and financ ing possibilities and new modalities and strategies for multinational co-\

operation.: Thus joint ECa/OAU together with the other regional' and subregional

organizations and institutions should introduce- Institutional or functional mechanisms t'o which -member State's- could confide their'problems and needs, and from whioh'they seek advice arid infoirnatioh.' ' ''*•'' '

xi. Some general arrangements on commercial, fiscal and monetary policies may be required among member States.': In addition, agreements have to be. , reached on proper costing and pricing in-the operation of AMICs including . modalities of finance. 'There is also a need for restructuring the.,exist ing ' relationships' between'national manufacturing corporations and their trading "

companies,' and revision of the national'bomraercial laws .and' legal, status, of.,

national corporations so as to allow: iri^r^corporations .co-operative arrange-,

ments like oross-shareholdings, exchange of'directorates| subcontracting and co-production of components, joint development of market power through

inter-corporation agency appointments and supply of inputs and distribution of outputs.

xii. In promoting such multinational co-operative arrangements and the

formation of AMICs more joinii efforts'are expected from regional-and subregional

institutions and organizations, particularly from,OAU Vto^doJeverything-in--its

power to promote the political will needed for the achievement of those ' "'*

objectives". . ■

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I, Introduction - ■ . ' . -

1« In its resolution CM/ST.12(XXI), the Assembly, of Heads, of State and'

Government of the,OAU. at its tenth..session" in.May 1973 in Addis Ababa ...

adopted the "African Declaration oif Co-operation, Development and Economic Independence"-, The UN General Assembly resolution 3201(S-Vl) - Declaration

on the Establishment of a New International. Economic Order - paragraph 3

(e and d)., recognized the right of a Sovereign-State to control over its natural resources..; and resolution 32O2(S-Vl) - Programmeof Action;on the

Establishment, of a.New International Economic Order - in Section VII On : . Promotion of Co-operation Among. Developing .-Countries, stressed "collective self-reliance". The Lima Declaration and. Plan of. Action pri Industrial

Development and Co-operation, emphasized ■po--oj>e'ration among developing" :" „ countries...l/ '; .;.' " /■ : ' ■' ' : ' ' '' ': :l";-^ ■". •'■ ■""■'-

Confe2

Pursuant tp, these declarations and resolutions, the"secOnd .and third'1" ' ::[

rences of, African-Ministers of Industry'held" in Cairo (lQ-21 December" Q ?'""

1973) and Nairobi (17^22. December 1975) accorded high priority :'fbr'j;'':'~' "'■;;::r'- :xV .industrial co-operation among African counti-'ies. 2j The' fourth Conference ' ;

oj.African Ministers of Industrj-- held -in Kaduna. in'November.1977'also re- ' solved ^that/.co-operatipn among African countries in. establishing industrial. '■.

co-operative ■"arrangements'and programmes should be pursued irrespective of \ differences in political and economic systems"^ i/' ' ' " '''""',', ''* " : 3o In the light of..the above declarations .and resolutions, the.main i objective, of thie. study is to..explore the possibilities, and modalities for the development of AfricariiMultinatibnal. Industrial Corporations (AMICs). 4/ ' The AMKs;.Wouia: also, serve to ensure effective control over natural resourqes, as the'basic units to whom.technology is to be transferred' and for which :r managerial and techniTcal capabilities could be' developed besides "actiiig W"""'' ' the spearhead for integrated industrialization. " " " ' ' * *:V ■• ' - V r Tc

1/, -UKIDO, Second .General Conference &f UNID0» Lima Declaration and' Plan of Action on Industrial Development, and-.Co-operation.. Lima. P^ri P.pA m«™*

1975f paragraph 60. ~ [ ~ ~— ■

1975f paragraph. 60.

"Repor1; on the 'Becond Conference of African Ministers of Industry- v.

r paragraphs 34-40.

ttRePOrt °J? ^ thlr? Conference of African Ministers of Industry"

i paragraphs 37, .59-61.

^/«oep°rt °n thS f°Urth Conference of African Ministers of Industry"

.14/689, paragraphs 40-47 and Resolution 10 (iv).

4/ It is explicitly stated that more emphasis would be placed on food

and agro-industries, chemical, metal, engineering and building material

industries.

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4 The rkport-:rLiii-d^id4d\int6^fiw-m4in-.partsi- Part I.I...explains "briefly

the needs and juatificatibna-(benefita^:b^'e3tabli3hihg ;AM-ICa:^Probleras of

establishing, bagic, dynamic and integrated large-scale industries at national ll^nU ;thV benefit^ to be derived"from establishing such industries are

'Part nr examines past and?present attempts on eatablislung.-''.

fo^s.pf economic c:o-operation; Tn Africa/and Latin America. • This c'lLtde^Hn order'to draw somfe-lessons and" experiences in regional

^au^ionar^onbraip co-operation;:i^In Part IV,: .different strategres-^.

and1 modalities "for the ■establishment': ot^AMICs -are discussed^ Part+V explains

"teaching technologies'-and teaching^6brap:ahie;s(t: througK -the co-operation of

African national industrial corpora-tionaVln1 Part VI some recommendations

; guidelines, are given..

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eca/cmi/fcia.5/wp/3 Page/6-:' ./;:'>'t\.''■-';; : ■

II. The Needs and Justifications (Benefits) for Establishing AMICa

.a-/i '-Problems of establishing large-scale, baaio^ dynamic .and integratgd.indu3t.ries. in Africa. .--. :.. : .;,; .<

_ / _ . .. . .

■3.■ : The establishment of basic, .Ibarg^seale and nationally integrated

industries,1 "particularly in the field^of agro-industries, chemicals, metals, -engineering-and construction materials,-has. the greatest dynamic impact on all

other-^econbmic' sectors of any: country.-■ Such industries,winter alia,.could generate a self-sustained and an accelerated;.economic growth, develop manager ial" and'technical* skills, "enhance, the transfer-and.adaptation of.technology, change the social and political-attitude3:bf. the. people, introduce new initiatives,' innovations and discipline.^- -;::■ . ■ • ■ * ... '■•>-■.,

6. All African countries have expressed strong desires to establish suoh industries at national levels. But they failed to realize their ambitions,

through individual national efforts because of (i) the sraallneaa of national markets, (ii) lack of finance, (iii) insufficient export opportunities, (iv)

dependence on foreign skilled personnel, imported intermediate and capital goods and technology, (v) inadequate information on upstream processing and

distribution of domestic raw materials, (vi) poor infrastructures, and

(vii) domination by foreign transnational, among others.

7. The fragmentation of national markets, low level of per oapita inoorae,

small size of the population %/ and the high ratio of expenditures on fooA

items on the one hand, and the minimum required economic capacities for baaic and dynamic industries, on the other, have been some.of the major

obstacles in the industrialization of African countries. For example, Table 1 shows that it oxsrtc US$209.40 to produce one ton of steel at 50,000 tons

capacity per year, which unit cost can be reduced to US$127.20 if the annual

capacity is raised to 1,000,000 tons. Similarly the unit production coat ifofr cement could be reduced from US$26/ton at 100,000 tons annual capacity, te, US$13.-.90 at 1,800,000 tons capacity, and for ammonium nitrate from US$19O4

ton at 50 tona per day capacity to US$101950/ton at 300 tons capacity, 6/

8. Lack of finance, particularly foreign exchange is one o'f the major problems in Africa. Oil rich countries" are exceptions but the amount of investment

required during the year 1975-2000 are beyond individual national abilities

unless strong efforts ore made to pool financial resources on a regional basis.

Table 2 for instance, shows that the total investments required during 1975- 2000 for six industrial branches alone would be US$247.80 billion. 7/

%/ Except Nigeria, Egypt and Ethiopia, all other individual African

countries have less than 20 million population (and a majority of them less

than 10 million). .

6/ Source: Industrialization and Productivity Bulletin, No. 8 (UN publications, Sales No. 64.II.B.6.), p. 55«

7/ The figure does not include investments required for leather and shoes, building raaterails, printing and basic metal industries.

Table1.Relationshipbetweenproductioncostandscaleofoutputinselectedindustries IteoUnit.Productioncapacityandcost Steel Caoacity•••••■•••Thousandsoftonsperyear502505CC Costperton1949dollars-2C9.4158.8137.5 Cenent Capacity••••..«••Thousandsoftonsperyear.1C045p900

Cost per ton ... 1959 dollars ; . 26*0 " 19.8 16.4

Amnoniunnitrate CapacityShorttonsperday50100150 Costperton1957dollars190.4H5-1125.6 Beerbottles'/ Capacity',i'-.'1.".•"•'*••.Nunber-of-moulding-machines---1•■2-6-

Cost per Gross 1957 dollars ' . 8.51 7.25* 6.13

Glasscontainers.. ■Capacity••.••••■•'Numberofmouldingmachines-12■*6 Costpergross,...1957dollars#8.667.776.78 Radialball-bearings CapacityProductionindex(l96l=l)123 Costperthousand...1961dollars-.220.6185.5-174.4 Tar Capacity."...Tonsperday.1002C03C0 Costperton...;;;■•/:.::i$6ldollars-■29.C26.5-25.4 Benzol;:...■*:'-•■'.■'■'■■■ Capacity'.Tonsperday501C02C0 Costperton1961dollars8C.774.971.6 Aluminiumplate.",T~:"-"-"••■• Capacity.Tonsperyear2CC1,2CC3,CCC Costi^er-ton-;.'.-•■....■I960-doil-ars;;-■■—-772.5■,759.7751.C Source:IndustrializationandProductivityBulletin,No.8(UnitedNationsPublication, SalesNo,64.II.B.6),p.55

1,CCC 127.2 1,800 13-9 300 101.5 .69 .12

.. 6.33

400

•■■24.61'

300 *70.2 5,CCC 735.4

9 8

GOSJ

■■■-;..:-...■■' Table2.Estimates-of i■■*. "''-* .■■..

Steel .'. : ■ ■

Forestindustri-es■- Engineeringindustries. Textiles-•■>•■ Foodprocessing Chemicals

totalinvestment ICalal investment -1975-2000

1975r2OO0,andre Foreignexchange Valueadded (2000) (aAJSbillions)($USbillion) ——129.6 21.3.

, . . . 33.6

;21.0 29.0 .,.13.3'■

;8.0 5.7 18.7 10.5 16.0 .3.6

gionalbenefits savings(2000) Employment (2000). (000persons) 1,940 1,000 5*000, 5,000 2,000 150

Duetoimport substitutions... ($USbillion) ■22.4..;;- 15.8 .50,0 43.0 20.0 .8.8

Dueto exports ($USbillion) 5.6 1.7 ■.• a• 23.0 Total'247.8

62.5

15,090150.030.3 Source:.CMI.3/lN^/TP/3,"TheInplicationofRaisingAfrica'sShareinWorldIndustrial.

'. Product ion. to 2 per cent in the Year 2000," 20 November 1975, P» 15«

■■-i■■-'■■'.i

e a

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9. Another major problem of African countries is that the economy of individual countries depends mostly on the export of a single mineral or agricultural raw material the price of which, with the exception of oil, fluctuatps'while the prices "of. finished goods derived from, these, raw.,

materials go up! "According to one rough estimate final consumers pay over —

US$200 billion, excluding taxes, for the major*primary exports (consumed

in a more processed-form) of developing countries (excluding oil exports), while the latter receive just.US$30 billion." & Another estimate shows_that

"Pour to five tons of bauxite worth between US$40 to US*80 will yield one^ - ton of primary aluminium metal worth USS7OO-8OO, which in turn, will yield .- semi-fabricated products worth between US*l,000 to USH.500. W

10 African countries have a critical shortage of skilled manpower. The critical shortage is not only in technical skills but also in;all"types of professions and non-professionals at all levels of work both in.production

stock of scientists and engineers per 1,000 population is 5.8

22.0.for Asia, 69 for Latin America and 112 for developed market economy

countries. ■ .-

11. For African countries the import content of:capital investments ranges from 35 to 60 per cent of the total fixed investments for the early 1970. j The import content in the machinery and transport equipment is still much higher than this because 89 per cent of the machinery and equipment comes from the North countries, 6 per cent from centrally planned countries and only 5 per cent from other South countries.U/ The import substitution - strategy has also led to huge import of intermediate inputs (chemicals, metal products, man-made fibre, pulp, nylon and other yarns etc.) .which cannot be produced domestically because of the smallness of-the national market on the one hand and the minimum economic size required on the other.

Thus in some projects import substitution- strategy has resulted in negative

foreign exchange earnings. . .

8/ UNCTC, Transnational Corporations and the Processing of Raw Materials Impact on"Pftvelopinfc Countriesi February 1978,-p. 1-footnote 6. . ...____ ___:

2/ LOC. Cit. . ..■ -' ' ' ". ' -. ■"" ". '_" :-:;"7 v^'l-\

10/ Francis k*aw«H;. Technology and Underdevelopment, Macmillan-Rressor":

Ltd., 1977, P-121-. ... ... ,..-_.. .''"■■■;

11/ "ibid p. 122. .■ ' ■_■'•'■ \.:^ \!v/~ ■

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Table 3: Technological.capacity: selected indicators .'' (Ayerages expressed ae medians for 1970 or .

latest year'available) .

■i ;

.Developed . Developing countries- - , . market,-'. ,■ ■•■• and territories .■-,."■.

economy a/ ■ -■ -vtf- -,. c/ Latin. 5/:

countries^. Africa- . Asia"7 America, . ' ' SCIENCk' AND'TECHNOLOGY

■ - s *

(i) Ratio of total stock of . scientis1;iB ' and engineers

.. ' ■!,>'/per'-i0f0pp1. pop. ' _'■ " ■ :"

;< (.ii)^Ra^io of; technicians per:

: '"* ' "10,000-' pop, v ■ . -.- . ■ •.

(iu). Scientists and' engineers 'engaged'in H &' D per

10,000 pop.

v-(.iv) .Technicians engaged in .-.

L .OY-?jRv&;D per' 10,000; pop. ;-;',-,;

Ji:(v) Expenditure" on ■# & D as

percentage of GNP 'L ■

' T

:• ■ ; ■ ■

10.

■ 8.

■■ ■•■ 1.

.4

2 ,

2-

■ ~y : ■ '■;

0.35 J

; V M'':."'"

22i0

"23.4

l'.6

' o:<5

.. .0.3 .0.2

2*7

ii. ' I highxhvel1'Manpower' .- - >■■. ■: ■" ■' ■ - i:-":-^ ■ '. f

(vi) .Professionals and technicians ].!\' ... ;;t

■ ■ •'■'__ as percentage of economically . ."" ., . . .

:■-.■. active pop..- ... ... ■ ... ...11.1, \. ; — .

(vii) Percentage of the economically :■' ■: ." ; ; -..- ;.■■-■;, -.

active population employed in -, v ■■• ■ ; ■

manufacturing sector 25-4 3-5 10.5

(viii) Literacy rates High®/ Low J/

(per cent). 96e/ 20 15 32

:-.-:....'.. (.ix) •, Ratio of primary and secondary. .... e/ ,. . , , .

enrolment to ^'school'age pop.. ;'■ "921 *"! " ;"»32. / " --56' -

14.1

78

from

a/ The size of the sample in this column variesby indicator, ranging

i-wu Tour countries in line \1±) to 25 countries in line {ix}.. ■ - - ,

b/ The siae-of the sample in this column varies by indicator, ranging from eight countries- in lines: (i)- and: (ii).^o: 46 ..countries in,lines (v?.ii)

1X *c/ Excludes China. The size of the sample in this column varies by'in

indicator ranging from seven countries in line (vi) to 3<? countries■ in Unes

11d/anThe1size of the sample.in this.column varies by indicator,,ranging

from Bfeven countries in line! (1) and U1) to 43 countries in line ^vni;.

e/ Includes Greece and Turkey.

f/ Taking upper limit of estimates where no precise figures were given, e.g. for 10-15 per cent, 15 per cent would be use for high estimate and 10

per cent for low estimate*

Source: Transfer of Technology, Technological dependence: its Nature,

Consequences and-Policy Implications, Report t?y tne unuiau Secretariat, TTJ/90, December iy(>

and

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12. The greatest problem, of which most African countries are not aware of,, is too much ..dependence oh foreign tr'ansriationale^fcf'tradej' manufactures,

mining, services, transfer of technology, skilled'personnel and management. ,

The impact of- their operations "'on -the "balance cf payment has "been negative, ,.- the loss. of. .tax: revenue through' transfer pricing,is immense, .12/ the "develop ment of indigenous' technology and''rilanpdwer is- restrains*^ and the host "

countries are deliberately kept"-as suppliers of rawrmatsriais and'co'nsuWrs' '■

of finished .goods ifor their home-based plants:' . Present slnidy-ty'UNCTAD on restrictive business-practices' of: transnatio'nals in1., electricrl .equipment ' \.

industry: (Brazil fs- case) demonstrated' that the ':traiiiati'p'naiB have1 even gone- as far. as destroying already"well-developed indigenous technology and manufac turing plants in Brazilian electrical industry' through cartelse III

13=-' T-t is very'difficult; for individual'"African countries to prooese their raw materails for export'because1 a/highpropor'tion of the "world trade is ',.

controlled.by TNCs (through their subsidiaries arid affiliates). Recent study on the international market power "of the TNCs (a'case'study of the electrical;

industry) by RvSc Newfarmer 1^/'demonstrates that the market power of the TNCs

is'ibe'eoming much too stronge As"Newfariner found out," their market power.is not mainly based on monopolistic1positions in a single market but also on:

(i)"finaiicial strength conferred upon industry leaders by their- relatively large size;- (ii) "diversity spread-across many national and product market'" .' : based on difference of trade names, brands advertising that reduces risks; ["''

(.iii).; central -corporate planning and co-ordination, and worldwide' integration

of production and distribution systems;' (iv) establishment of 'subsidiaries and affiliates- in .most -countries of the wor^Ld and' i'ntra-firm'transac-tionRj (v.) formal and ..informal: cartels of ■.li.rcpoiistic nature, ""'mutual competitive

forebearance strategies.'!, that is, :formal.'Vaifl^informal agreements1 on^market1 C

!ehar,ing,and-.alloeation, spheres of influence, price: fixing in different markets, quantities of output and sales,, investment locations and ownership" patterhV";':

(cross-shareholdings? takeoversjMnergers)::-and de-nationalization)^ paterit's and trade marks with restrictive clauses, standards,-gu'arantees, credit'';V";/ '"

sales, rebates and discounts,

14» Apart from this, TNCs have:accelerated devaluation of weak' currencies and revaluation .of strong currencies.by-withholding export payments'due and making advance.payments for imports to-'w'eak Currencies" irom otrong currency countries, including currency: speculati'dri." r>/ TNCs could also frustrate"

export promotion policies of governments* "Thus if Britain devalues (its

12/ Lail and Streeten, Foreign Investment, Transnational and Developing Countries, MacMillan Press Ltd., 1977, pp.. 131-132, 153*

,iy ;Epstern&,Mirow,. UNCTAD St/md/9, "Impact on developing countries' of'

restrictive business practices of transnational corporations in electrical ' equipment industry,, A case study of Brazil", 1977.

14/ Richards Newfarmer, "The International Market Power of Transnational'

Corporations, a case study of the electrical industry", UNCTAD/ST/Md/13, 1978O

13/ Cristopher Pugendhat, The Multinationals, Pelican Library of Business

and Management, 1977, Bungway Suffolk, Great Britain 1977, p= 195. According

nS^o^Hn^^foJSV4!0?0 Si:Lilion ^owed into Frankfurt in a single ten-day

period during 1969 Deutche Mark revaluation.

ejca/cmi/fcia.

Page 12

currency):it does not necessarily,.follow that the local SKF (Swedish

Aktienbolagent Svenska Kullager ■-, :Fabriken): factories will suddenly be able to export more bear.ings.at a more competitive price to the continent at- the expense :of their.French, German and Italian---sister companies ... (or): -V if French cost? are increased ...,the exporteof French SKF factories do "- -m- not.aeceesarily decline, in .line with +.l%eir, loss :of competitiveness. They '• '- may even increase".16/ Therefore, the.TNCs ca.-.v decide, among others, where ' to produce and where to sell, disregarding the classical theory of comparative advantages. "General Motors, sends Vauxhalls frqn. Us British' subsidiary to Canada, and reserves United" States for. Opels, which it usually Brings in'from'

Belgium rather than Germany".17/ • . .

15- The TNCs have also used their dominant positions of market.power in the application of transfer pricing mechanism, usually through intra-firm trans actions. In Columbia, for instance, overpricing in pharmaceutical imports, ■ in the period 1967-1970 came to a weighted average of 155 per cent, of . electrical goods to 51 per cent, of rubber to 44 per cent and chemicals -'■■■

to 25 per cent. In Chile, of 50 pharmaceutical products examined, overprioing exceeded on the average 100 per cent" and in Ecuador six products showed:" - ;"

overpricing of around 200 per cent. In Iran, in late 1960s, of the^ 72 cases {) of intermediate drug chemicals, investigated, for 38 per cent, overpricing: was- upto 199 per cent, for another 50 per cent it was between-..-200^.99 per cent ' ■' and in 6 per cent of the. cases it. was still higher.. .In sthe dyestuff industry,1 in India (1970-1971), overpricing was found to be between 143-347 per cent. ' In Peru a subsidiary of TNCs exported a bulk sales of a product to its

sister subsidiary in 'Puerto- JtioOitat: USS2-5Q -f'.Q.b.v.-pqr.iUnit while-small number of transactions of the same procVact-wa* odd by the same subsidiary at

US$12.5 f.o.b. per unit in New York. It has been estimated that Latin American countries have lost in 1969 US$427.5 million through underpricing of exports associated with intra^company sales. 10/ Thus as Hymer stated, the power of :

transnationals is enormous. r.. .- . : : '■■-

"A regime of multinational corporations would offer under-developed

countries neither national independence nor equality ... It would ";- ' : turn under-developed economies into branch-rplant countries, not; only" /]■"*

with reference to their economic .functions but throughout the whole "' ''"'' gamut ,of.social, political and cultural roles".

■"[■■:->

16/ Ibid p. 151.

12/; Ibid p. 142.

18/ UNCT^/ST/MD/6/Rev. 1 "Dominant positions of Market Power of

Transnational ..Corporations: Use of Transfer Pricing Mechanism". 30 November

1977, p.V3B-42. ' . ... . .

Lall and Streeten, op. cit, p. 58 quoted from Hymer (1972) pp. 126

and 129 L

■■ ■.. ■ ■ .■.''■-■

.., r .-! ■■• - . ■ ■

"analysis there :i:s a -general consensus 20/

that the development Situationi of "UXSs^is gettirig:w6rse instead:of-' improving.

Thus African countries are only left with the alternative either of establish—

ing::ibasic;''-"djr,amic and1 regionally1 integrated'industries,-'such as agro-

industries, chemicals, metals, engineering and building materials* jointly or foregoing tta^iLo That is, to make' a break-through in industrialization

' a^d''-i1ndepen?dehce:fi;6ra tratfs^atlo'hals through" rnterdependenbe-among each other (collective self-reliance), £'dr to remain dependent 'on tfansnationals,

with all its SQcial* political, economic and technological implications and consequences. .-"■'""- "■" :-j'-' £ ;" *'*■- -j ;-" - ■;-/'-'-; ;; ">;i .^■.^■•- _ ■-■- :,-.!■ , i. ■■-.-,

17. The establishment of AMICs would benefit African countries and accelerate industrialization in the region. One or two or three AMICs oreated in the field of basic and dynamic industrial branches, such as chemicals, metal and engineering on a regionally integrated basis would act as the nucleui in

the region for: .

(i) Development, adaptation, choice and transfer of technology and research integrated with production units.

(ii) Development of managerial capabilities, technical skills, and

know-how in production, repair and maintenance, acquisition, distribution, and creation of opportunities for in-plant training or learning by doing.

(iii) Control over development of natural resources, processing

raw materials, production and distribution of industrial goods?

(iv) Creation of stable conditions for Vn.e supply of basic and strategic goods (cement, fertilizers, iron and steel, engmering, etc.) at reasonably

stable prices ■{

(v) Creation of dynamic, self-sustained and regionally integrated industries with forward and backward linkages enabling subcontracting in the region |

(vi) Increase in employment 21/ opportunities for Africans and restrain

brain-drains, f . i

(vii)' Increase in foreign exchange earnings, domestic savings and investment in the regior| 21/

%/ UNH30 ID/WG.279, "A Framework for Rethinking thp Concept of Appropriate Technology for Development", June 1978f p. 1 and 5.

21/ See Table 2 ? page 8.

Page 14

(viii) Strengthening .the .regior •s knowledge, abilily, skill and power

to- negotiate with and control the a&trlties of the transnational

corporations in the transfer of technology, acquisition and distribution of goods, as well as in control -over their malpractices; .

(ix) Improving the, politicalT economic and social relations among ..

African States; . ■ " - .-..-'.

(x) .Organization of consultancy and management services and promotion of standardization and quality control in the sectors;

(xi) Acting as holding-companies to invest surplus funds in different branches of industries.

Page 15

III. Examination of Existing Multinational Economic Co-operation in Africa.and' Latin America ' . "

18. The examination of existing multinational economic co-operation in

1100*3, as wide and complex, is beyond the scope of this report. Secondly- large amounts of literatures have already been produced on the subject. 22/

The purpose of this partf'bf'-tne report is j therefore, merely to review attempts which had been made or are being made in regional and subregional economic co-operation so-as to'draw lessons and experiences from the

problems faced, as well as their failures and causes- These lessons and experiences-are vital1far the success inestablip'iing AMICs because the final objective in both cases is the same -: economic development through collective self-reliance and efforts.

a. Regional and subregional economic groupings'"

19. Both African and Latin American countries have-established-"different forms of economic groupings like free trade zones, customs unions, common markets" and economic unions (integrations) on regional and subregional , "

basis.- 23/ Observations' in1 thb case of Latin' America indicatei that.:1 : '■ !/

(i) Attempts for economic integration usually begin with"a foriaarrf zeal., "

and sooner, end up in disappointment, and (ii) similar, problems re-occur / . .

with high frequencies in all the attempts of co-operation.

2O..i Both .in Latin America, and Africa the problems are invariably the' saJhe;

in essence except■in forms which are•affected1by pecularities of circumstances in,each, region. These problems-can be summarized under the following headings:

■ (,i). Weakness -in tine definition of objectives, institutional'structure's,

and organizational set-ups; 24/ ■' ■ ■ ■ * - '- ■ -

.;22/ See B.W-. ■ Mutharika, Toward Multinational Economic Cooperation / '

in Africa, Praeger Publishers, .Nr/-I972; Green*and Seidmah Unity or Poverty?

London, Penguin, 1968> UNCTAD (C.V. Vaitsos),'"The Rdle of Transnational .Enterprises in Latin American Economic Integration E. Hons", Ljm=i, 1974- '""'"'•'

23/ For Latin America: LAPTA, CACM, Andean Pact,- SECLA, OCACM and SELA.

For Africa: EACM, IXDEAC, CEAO, OCAM, ECOWAS, ESAS, the i4aghreb economic

groups, etc.

24/ This cannot apply both the EACM and Andean Pact, but the failure of ,EACM and "the recent problems in the Andean Pact after ■Chile's withdrawal indicate that strong institutional structures and organizational set-ups1

cannot guarantee success by themselves.

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Page 16' ■

(ii) ■ Narro'w'cohcept of ecfuitable distribution"of benefits ■ " "'""

(usually associated with location^ 25/ -■,.-.-

(iii).. Nationalism;.. .- - , . - ... .•,.'.'■ ■

(iv) .Competing ideologies and national rivalriee,;: ■ :.,~ ^ ■..■ --- (v) .Personality involvement and personal rivalries .of politicians;

(vi) External pressures'(foreign governments outside tho regions-."

and transnational corporations) ; : . .,■ . . ■. , ,-.- ■: :■ '.,'■'■■ '.-.■-*•- (vii) Too much reliance on foreign multinationals" or TNCs for invest

ments, distribution and marketing. .- ■ . .

■ . b. -African Multinational Corporations ■.-.■. . .-' .. '

21. There:.have'been a. few number of .multinational corporations in: Africa>'^

mostly in. services and transport^ ■. The; former Fast African Airways-, :(EAA>,-■'■

the East. African Railway Corppration-.;(EARC)T- the Fast -African. Harbour - [■'.) Corporation (EAHC). ar.d the East African Posts:.and Telecpmmunication.Corpora- tions (FAP & TC), once taken as models, have recently collapsed.; kir' - ■''■.- Afrique has its own problems and weaknesses, but still it operates 26/

with some.of its member. States developing-their, own domestic airlines '.while o.thers completely..withdrew. There are still a number of railway lines . -

operating on a multinational basis, mostly.connecting land-locked countries' to ports located in other countries. With the exception of Tazara Railway, all the railway lines have, frequent -problems, but the land-locked countries, having no other alternative, are forced to co-operate. ■■',-■ " i. - - 22. The «aajor problems of these multinational enterprises are almost the same as of those of regional rjid subregional economic groupings (para 20) with some minor variations. Like most economic co-operation in Africa, with the exception of Tazara Railway, all these multinational corporations were, established or-jinit-iated by the farmer.:colonial powers'1 either to.j.serve

colonial'administrations, or to connect, mining "and ."plantation ''enclaves.'.! ■?• -./

to''ports-or,, to facilitate the business operations of foreign firms. After ':

independence, these, corporations have failed.to adapt their services td""'--' the needs and objectives of member States with differing stage of economic .development and.resource endowment.. ■ , :-. -:.-•■ .

^. See Bostock and Curtin, CMI. 2/lM/W/i '"The African Multinational Enterprise for. the Creation of Multinational Industry",' 9 July 1973. ' " '

■26/ Air Afrique may have some connections with the French Air

Line (UTA).

eca/cmi/pcia.5/wp/3.

23. ;-O,ther .;main- problems .of. these corporations have been how to ..allocate.. .:,

costs7, .and. fix prices for. different lines- of operation. ,in. diff.erent^co^i^

■In Eaat'fiAfr-ica, fpr...;instance,. some member States wanted to fix.lower:i.' . .'_,

fre^^^r^tes-for';ce^a^-cpnpio(iitieSi, .and to operate certain unprofitable,

routes; others wanted to extend services to certain new areas involving.:...';

additional investments to be financed by'the corporations; and some made

the'interests pf the corporation vulnerable-.by. giving, landing rights to "'

foreign1 operators, to-attract tourists,"27/ ■:■"■'• ' . ■'.- ',.■■.:.: \-.-'k. ^.y~" :~,

:'-V.c.-" Evaluations 'of-existing, economic co-operation, ■- -. ,.. .^.-Vi =-. ■■■'- 24. Apart frjora .the- problems, and' weaknesses, discussed .above, the whole

existing*, structures,-objectives, strategies, and modalities of .regional .-.

and subr;egional economic groupings arid, integration..among developing. ... .:

countries have recently.-come.under question. ' .< r- ...■ '._... . r'-. . :.

Vnio is integrating and with whom? Is economic ..integration taking .; . place (a) between the overall productive structures .pf.-the member... vx countries, or (b) within the inter-affiliate relations of the

\ ."-;for,eign:.originated corporate system, .and/or (.0) between.the -home : .

economy of the TNCsr parent firms and a group of" countries rather ., . than among the latter*3 In short, is integration leading, in

terms-of production,, towards national and regional .development ..

or does it imply a process of de-natipnalization ..in favour, of non-r-- , member countries and foreign interests' ... liJho appropriates the

.benefit of-economic integration and.who pays, .for its, costs". 28/ .

25. All the regional and subregional economic groupings have mainly been

aimirigy-; inter a3:-i;at to • increase- '(i) trade (export and import) among : member States.-through-removal and/or reduction of tariffs.:and nonrrtariff „ barriers, (ii) total investment (by means of growth in GDP) through

incentives,, .(iii) -. industrialization .through lmpoijt-rsubst itut ion and-.process- ing domestic raw'mateTials for export. -,..,. ■. '..-.= .' ".>- - '' -

26. .Let us assume;for. the moment that there.:.is nothing wrong.with the above

objectives; then two things (strategy and modality) need .to^be discussed...

The strategies and modalities of implementation machinery, including

allocation of benefits and costs, are assumed by private investnrs (both

■ ZjJ A.,Segal, in Contemporary Africa; Monographs No. 1, "East'-Africa:

Strategy for Economic Co-operation", East African Social and Cultural

Affairs, Nairobi, 1965, pp. 10-21.

2§/ C.V. Vaitsos, "The Role of Transnational Enterprises in Latin

American Economic Integration Efforts: Who Integrates and with whom, How and for Whose Benefit?" Report prepared for UNCTAD Secretariat, Lima, Peru, 15 May 1978, pp. 1 and 2.

eca/cmi/fcia. 5/vn?/3

Page 1-8 ' ■ ' ■

national and TNCs)-" ,2f*/ But the interests .of- private^ investors and those

of the integrated.member States differ and secondly, which is more important, the-interests of the integrating member States and. those, of TNCs. ^completely diverge-- . Taking, the -latter,- let us ask-what are the main objectives- and ..

interests^ of. TNCs? ... , ■■-■.. . ; ■■ .-..••.■■. . ;..-■'. ' •• :i-I : ■ ...

27- ■ The main objectives of the TNCs are,- inter.alia,, to maximize their . • global profits through reduction in costs or increase in prices»■ optimizing global share of the markets, retaining their monopolistic or. ligopolistio positions, controlling the sources of scarce and strategic raw materials

for home-biased .industries, etcJ In the light of the'~curreht international, political, social and economic situation (ideological conflicts, growing ■ nationalism, political unrests, nationalizations, expropriations, etc..)*. v

it is in the1 best interests'of ..TNCs if the total gains .obtained from., ,:..; . international operations are "rushed" to home countries, that is, all.., profits obtained abroad should be invested,in home countries. One can also add their national-interests, such as, domestic employment, deepening production, defence', "technology, etc, . . -.-. , . .•;■■;■ ... :.: -

28. The. final results of integration*-as. happened; in Latin America, ^0/

would be:" '■ - - ■ ■-■■ ' ' J : ■ '■■ ■ n..1

■'-.'■ -■■.'■*■ ' ' : :;:;. v ". " ' . .' ' ■ ■'

■ (d) " trade increase/between TNCsf home.countries and integrating member 'States.- not: among the latter; - ; :.-,..■. . .

(ii) TNC.s, with their enormous powers (managerial, technological, financial and marketing)f have boxight indigenous firms; . . .

:(iii)-" the'manufactures in integrating member States ( ha*fG pohpen'trate.d. on import-substitution - "final touches" based; .-n imported intermediate .inputs;

' "- (iv) i the trade deficits of all member. States vis-arvis TNCs.home.r :.

countries have accelerated; and "

-(v): 'finally the whole .economic growth:and development in integrating states1 is^now .being questioned, v.ir^i-.. .... ;.■ ... -..,••■<■-, - .^. -,.'■■,' .. . •

$ The member governments try to regulate the TNCs through traditional

economic instruments (fiscal and monetary) and some administrative and

legal controls, all of which have become inefficient-and ineffective.

C.;V. Vaitsos Op.

A. 5/WP/3' Page' 19

29. j; Practically all regional and "subregional economic groupings, .both/in' Afrrca'£nd .Latin America, .faiied to -take - control over the development.

production -and distribution of natural resources of the member States

through collective self-reliance - as their main objective. They also over

looked that, the, methods of realizing this objective are through (1) the development of managerial capabilities and technical skills; (ii)'.the

development, adaptation, choice ,and transfer of technology 31/ and researches

integrated with production units; and (iii):.the establishment of implementa

tion machinery (not'to be. surrendered-to the outsiders '.or TNCs; i.e. public enterprises and to some extent indigenous firms.of member States should have

been used as implementing machinery), r" The ra*ab*5r States;should have ! -

concentrated on these strategies in their, planning1and-all their policies

should have been geared to facilitating the implementatibn:of these objectives.

30. Instead, all economic groupings have been invariabl-y: concentrating on the

■narrow concept of, "equitable distribution benefit's and costs" among members.

Equitable distribution of -benefits ;and costs has been taken as .synonymous *■

with physical location of plants. The amount of benefits derived from

industrial establishments are not limited to location (employment, value—

ad^ed^and wages) alone. The benefits have to; be. looked at from' broader

concepts'and ldngrun perspectives^ There .are.more benefits in the control over the production,, acquisition, distribution of raw materials, intermediate and: capital goods-.than physical location of :.plants;;v. Other benefits .to be' ' looked at dre the,,development, of technical and:managerial capabilities not . only to'6perate;existing plants, but also, to select, adapt, and develop new;

technologies for.basic,, and-dynamic.industriesf such as chemicals, metals : ., and engineering. To. repeat, the very .-.need of co-operation £mohg developing;

countries on regional, and subregiqnal. basis arises merely frbra the necessity to control the development, production, acquisition and1 distribution'otT-

natural resources (including manpower) and.t'-> transfer oi^ecitoologyXinciua1-

ing development and adaptation) through collective'self-reliarice.!;: , *'-/■ . : ' ,

d. Existing African Multinational Industrial Corporations1 . ./

31. It. is very'difficult to say that there, are any. African Multinational'

■Industrial Corporations in the true .sense^of" the word. " A few1 'industrial

projects have nevertheless begun to be entertained a bilateral and trilateral basie^ The common usage of Volta Power Plant (Ghana) between Ghana, Togo

and Benin; CEMAC (Cement plant under construction in Togo) between Togo,- Ghana and Ivory Coastj Iron ore project (Guinea) between,Guinea,: Nigeria and Algeria;

cement,, sugar and steel between Nigeria and its.neighbours;Yjoint cement projects between Algeria and Tunisia; joint projects "between the Congo, the United Republic of Cameroon, Gabon and Algeria.for the development of iron ore and forestry*.resources; joint wood industries between,Tunisia and Ivory Coast;

fish processing industries between Libyan Arab-Jaraahiriya and Tunisia; joint

31/ The Andean Pact has taken this into account, but the implementation

machinery was assumed, by TNCs.

eca/cmi/fcia. 5/WP/3

Page 20 ■ ■ ' ■

development of copper processing between Zambia and Egypt; and co-operation between Morocco and other African countries in phosphate fertilizer develop ment are-Borne-of. 4he-;oo-operative-1 .industrial pro jects' underway. 32/

32.;- Other cp^pecative .industrial "projects £2/ being"entertained or under' :

negotiations inolfude copper wire arid cable between Zambia and Nigeria;' iron and steel production including some engineering companies between Kenya and Swaziland; a sugar project between Nigeria'and Swaziland; cement and sugar' projects-between Nigeria and Benin; iron and steel between Nigeria and

Mauritania; phosphate fertilizer and Renault car assembly between Togo and "

Nigeria; 'development of uranium between Nigeria and Niger; the Chad Basin Commission (agro-industries)r-tne Niger River Commission and the Organisation of the Senegal River States (agro-industries, power and transport). The

Kenyan Industrial and Commercial Development Corporation has made an agreement to establish a machine tools factory jointly with the Indian state-owned

Hindustan Machine Tool Company; Egypt and Iraq have started co-operation on the production of electric transformers; consulting engineering arrangement is being explored between Algeria and India and between Nigeria and India.

33-' ~Co-operation on all the above projects has developed out of special needs or desperation of member States.; Co-opefation on Vol'ta Electric Power Plant, for instance, came about because the two. co-op;erating countries

(Togo and Benin) have critic-,1 shortages of electric power and the producer (Ghana; has a problem of excess capacity. Thus the co-operation has enabled Ghana to operate at full installed capacity reducing its overhead costs and for Benin and Togo it means meeting their demands at cheaper prices.

Similarly the sudden discovery of limestone for cement manufacture in Togo (a small country both in terms of area and population) matched by the strong- desire of wes-t African States to get clinkers' from a nearby state rather

than importing from Europe enhanced co-oper*-: ion (CEMAO).' Nigeria and Benin ■ were founding member* of CEMAO,but after the discovery of another limestone source in Benin and because of the sudden increases in the Nigerian demand they left CEMAO and started to establish another joint plant in Benin. Again, the desire of Guinea-to exploit, its iron ore and its financial inability, and the desires of Nigeria and Algeria to get iron ore ?xe matched out of needs. Nigeria or Egypt wants to produce its cable and wire requirements while Zambia wants to process and market its copper independent of TNCs.

£$/ E/CN.. 14/649, "Report of the third Conference of African Ministers-

of Industry", Nairobi, 17-22 November I975, p. 11.

.. .£i/. Most °f "the information under this section.was obtained during the

field mission to a few African countries (Nigeria, Ivory Coast, Senegal,

Tanzania and Kenya). Useful discussions were held with some responsible

officials in relevant Ministries, Institutions and Organizations including

the secretariats of ECOWAS and ADB, but all the views expressed here are

solely those of the consultant.

bca/cmi/pcia. 5/WP/3'-

Page 2-1

To develop .its own steeliimillandrengineering industries, Kenya wants iron.' ; ore from-.. Swaziland whiie; the latter has a>strong; desire to'process its iron-;;. , ore rather than: exporting it to Japan'; at. pheaper prices. But1 the"itiarket '■■■■'-■'■■■'•■:

of both countries being smaller, as compared to the-minimum economic'capacity . required for a steel" mill;," they atill look for. more regional states to join

them or open their (other states) domestic markets for their products. There

are similar" interests being indicated .like the- requirements "of ■raoi'e member- '■/"-

ship in.the telephone equipment project between Senegal and Ivory Coast) ■•;

Kenyats indication of interest for the development of copper, wire, cable and electrical .equipment with Zambia;. Tanzania*s- interest on the same line of ■'• ; activity with "Zambia ;and'Mozambique^ and the need for partnership-fto«:'6'ther : African" countries for. the exploitation and .development of its recently/'- : , ...

discovered.^phosphate-rocks, natural gas and iron ore; Ivory Coast wants "tc market: its pulp land -to; acquire chemical and. raw material inputs for its" ■

fertilizer plant (both projects under construction) and Nigeria looks- for more markets to process its gas (presently being wasted) into ammonium . .;

nitrate. Similarly Ethiopia and the Congo need other partners to develop and sell theirpp.taeh- deposits. All Eastern; and Southern*;African countries . want to establish.pulp mills both for their existing paperJmills and. the ■

product ion. of-tnan-rmade fibre (viscose" plant) but .their individual: national,

market - is-found much smaller than the minimum economic size for^a pulp mill, thus* tiny need-co-operation^ . . :.■ ■■ ,■.... . .* ..-

34- There are many such cases of co-operation .in.Latin America, but they ;- ■-. _>

all areon..a bilateral-basis. i4/Sorae of ,the- main weaknesses of suchoco- . ■, -, operative industrial projects "both iri Africa, and Latin.America . areothat __

they fail to go beyond meeting the immediate needs of member States ( e«g«:

Benin "and Nigeria withdrew from .CEMAO);/they.are. not planned on the basis; , of long-terra growth strategy) or in .terms of vertical and horizontal expansion and integration and they do..not ^.cpmbine production with development ^and .■..'■: ■ transfer .of .technology including technical and;.managerial skills;.. .Their ;■ ,.,:

other major problem.; is the:fabsence of :.an institutional-instrument or machinery which could act. as '-a.-.marriage broker in arranging first icontacts and as a. : !■-■., catalyst during negotiation,1, as a peace maker during disputes or misunderstand ings and.'as:a promoter; in .collecting and monitoring information ,to member States on the possibilities and modalities of multinational .co-roperatiori on..■-. :

a continual basis. The Latin American Economic System (SRLA) tends to in

corporate such functional mechanisms into its operational structures through its "Action Committees"* Similar institutional mechanisms are not present in Africa, and many of the above co-operative arrangements are being done out of desperation without external assistance and information.

34?/ See Fernando Mateo and Eduardo White "Public Corporations as means of distributing costs & benefits within the framework of integration" UNCTAD/

TAD/El/SEM.2/3, 20 November 1973.

eca/cmi/fcia.

Page, 22

35. There is urgent need) therefore, for the creation of such institutional mechanism (broker) which could also give more momentum to existing ones:

injecting'new and more blood into them'in "the form of new membership^ new marketing arrangements, new sources of inputs,'new financing, possibilities

and new modalities and strategies: for multinational co-operation. ECA/OAU ■ -:-

could easily play these brokerte roles together'with the other regional and:

subregional institutions and organizations (ADB and ECOWAS-). = Joint ECA/OAU-- -

afforts may help solve the present deadlock in financial arrangements for - the cement project between Benin and Nigeria, bring together all^African _ -

states (Nigeria, Egypt, Kenya and Tanzania) interested to develop -the ■•: " ■ , .

production of copper wire, cable and1 electrical equipment with Zambia: on ■■■

a multinational basis rather than on bilateral approaches, promote more membership for the telephone equipment project between Senegal and- Ivory Coast and iron and steel project between Kenya and Swaziland; arrange :.

partnership for the development of Tahzaniah phosphate,1 gas and iron ore;

initiate the membership of Ivory Coast in the -Volta Power;Plant expansion rather than building its own', and so on. ■ ' ' ;

36. Such arrangement or mechanism within ECA/OAU could- also.monitor '

educational information on the benefits of multinational co-operation" so^

as to develop attitudes towards joint1 efforts, and explain the-threate •; - ' ='■'!■

T?y "TNCe without alternatives in the form of co-operatibh. The arrange- ■"■■"■•"

ment should work with or through regional, subregional:arid natibnal Institutions and organizations in disseminating the needs, interests, possibilities and

modalities of multinational co-operations aniong African states'. It" should .:

provide continuous irii'brmat'ion for new areas antf opportunities formulti- - national co-operdtiori' involving industrial development, exploitation of*' ' ' *;

mineral'resources, processing and marketing of raw materials, developing' • ..■■

intermecCiate inputs, subcontracting components, joint production of capital

goodsi etc. It should continuously develop new strategies and modalities , ^

on multinational co-operations (general and apocific) and pass them on to : :-■•

interested member States. It should also gather information arid develop • '■"■•

modalities on sources, terms and structures of finance, feasibility studies,

implementation machinery and any other new ideas on multinational-co—;•' operation and inject them into technicians and institutions of member States.

Once the idea gains popularity, it could pick up momentum leading to "the:

formation of AMICs.

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Page 23

IV'w ''Future Strategies and Modalities, in Establishing'AMICs : .'•■-. !

a.' Strategies . ' " ... - . ■ .:■ ' ■-' • ■ ■'*-;*: =:-

37* In order to avoid the problems and mistakes discussed (paragraphs l'8-30)

there should be a-complete.departure from past concepts0 In the establishment of. the new AMICs, more concentration 3hould be. made on new objectives -arid- '"■'"'' strategies. To pursue industrial co-operative arrangements and programmes among African countries, .like the establishment of .AMICs, "irrespective of differences in political and economic systems",'we-have-to raaKe greater

emphasis on pure business approaches, indeed, taking into account the' special needs and stages of growth of the member States. Such an approach has to avoid,

as much as possible, high level politics and ideologies. - , - '■•-■" 'i;v 39. One of %he most important things which African countries could probably

need to learn is why and how TMCs begin business operations abroad. .' That-"is,"

member countries aiming to establish AMICs could, develop, and use.the same '""■

reasonings and procedures, Thus .the aims of member states could be like those of the TCJCs, based on their special needs and social and economic'goals, e.g. :-

(i)'•■• Acquisition of basic raw materials and intermediate inputs for their existing and/or future domestic factories over a long-term

■basis ■ at^ reasonably stable prices }' ' '

(ii) Distribution of their existing and potential raw materials,

intermediate inputs, and finished goods, guaranteed for a long-term period, at reasonably stable prices) ... . _. ,. -

(iii)-Development and exploitation of new cheap resources, such as mine—

ral wealth, agror-industries (multi-purpose river basin) with'-cheap

'-'■' ■ ■ power and labor;; ■" ' ' - :. ' '-r -,.: . .■■;■• '-•

(iv) Desire to diversify investment location, sources of inputs and ■.; . ,-■

foreign markets; - . - • . ■- ;

.-■■■ (v) .The need to-expand and grow to keep up vath oligopolistic foreign-.

. -competitions. ; ' ■ . ; ' ■ " r..:,. .

39* 'Apart ifrom the above busin9ss approaches, member States could, transform' ■'- economic" dependence on IWCs (stationed in'developed countries with military ' and economic menace) into interdependence on regional state corporations, which are more or less of equal strength and equal control of natural resources through collective self-reliance. It is not ty accident that this is in

contrast to why the TNCs go abroad - to control essential raw.materials located

in foreign sovereign states. .-■.:' .- . ■ ■ '■ ■ - ■■-■■"" : ■ ■...*_

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Page.24- ■- '

prospective* oouia t^e

41- Some analyses have already been'made on the p-obleros of developn

countries m acoelerating their:industrialization(Part IlS) ^ the

Table 4,

; " 1961-1965 1966-1970 1971-1975

• ■ _ Developing countries ' ' ■ '34^. ? ^^ ■ • ^

Developed market countries "■'■""'' 64,4 'J " 7^0 ' 856

: A .Brownrigg, St

tht _Mining ^Risk

As sho,m i? Taolo £ the de^e^of mineral processing ^ dev

countries M low (30 per cent) and shows station?^ S the

Substantial progress has been made in cross-frontier co-

s:r.*SLss:r»

UNCTC, op.citc pai-13.

Table-5..■Degree-ofmineral-processing

' '.'-. . conducted' in different^ i

Region■Valueofprocessingof'mineral-'processed:

locally; .as';;acfip^er.centage "of the: processing valu£ ipf^all^Tminerals rained in. the region if.^Ebcess^d^through;their final .stage : (metal ingot), a/ ' ':.< !

UnitedStatesaridCanada.' Western.Europe-.■■;- AustraliaandSouthAfri:ca- Developingmarkei:econom'ies-^:.: Centrallyplannedeconomies''.}

1950. 146.-: 250.

89..

3P.:.:

- 99

■■:-I960. 179

x.. 381 -

.:72 28:; 102

■.1970 :■179

■■' : ■"■"■ 1046

■"■•■-:38 ■-,29

■" '" 108

100...100.100. -C:

-a/ .Computed as the actual value of processing operations ::iri; the. region as a. percentage of total value of processing if all ore mined;,locally had been .'processed to metal, ingot'.'stage,

except-for.ironore.,manlinessore,andpho'sphaterock'fdrwnichpelletizsdorsinteri7,bdiron ore,.ferromang^nese,andsuperphosphatefertilizei-;haVebeen"taken-asrepresenting:the' processedproducto;'...■,'.'.'■''r'["..."■■..•'.-.'■ Source:R.Bpsson'andBoyaron7MiningIndustryand'the'DevelopingCountries?''

' . (Oxford,■ 1977)^ p087o: ... :'; '<■} : ■■ - : ■ ■ . .": -' . ;;

o 3 r',VI' 0'!•;-.•