Among my pretty strenuous criticisms of Paul Romerâ€™s Charter Cities concept, I did point out that there were genuinely interesting insights and ideas underpinning the idea. One of them was the idea that a functioning capitalism does not need to be generated domestically, but can simply be imported in the form of international capital, multi-national companies and so on. I spent last weekend in Nairobi with a couple of friends, one of whom is an entrepreneur there. He told me about recent developments in the Kenyan economy, positive and negative, and this issue of the source of the capitalist impulse came up again and again.
Take telecommunications. Telecoms is big business in populous countries with high rates of mobile ownership like Kenya, and the services available there are both expanding and becoming cheaper rapidly. The biggest players in Kenyaâ€™s market are Safaricom, which holds something close to 80% of the market; and Zain, which appears to be their main threat in the short term. Zain is aggressively pursuing a strategy of cutting prices to increase market share by offering phone calls to any network (and even international calls) for just 3 Kenyan Shillings a minute. Thatâ€™s roughly 4 cents in dollar terms, and itâ€™s being marketed as a permanent price change, not a promotion. Meanwhile, Safaricom have one major trump card that they are using to hold on to their market share: M-Pesa, which they run. M-Pesa is the great Kenyan success story so beloved of development workers, which allows people to transfer money instantaneously and very cheaply using mobile phones. This is all great for consumers, who are using more and more varied services on their telephones.
How great this is for the economy, though, is not as clear-cut as it seems. Safaricom, while marketed as a Kenyan entity, is actually majority owned by the UK telecoms company Vodaphone (much in the same way that Malawiâ€™s Kuche Kuche is marketed as â€˜Mowa Wathu Wathuâ€™ â€“ â€˜Our Beer!â€™ â€“ despite being brewed by Carlsberg). And M-Pesa was actually developed by Vodaphone and is administered largely in the UK, where all of the servers that it depends on for functionality are based. M-Pesa actually only have a handful of employees actually working in Kenya. Zain, too, are no longer an African company. They were sold by Mo Ibrahim a few years back and are now Kuwait-based. The profits generated from their business in Kenya are repatriated to foreign owners, minus corporate tax.
Instinctively, the mind recoils a little from this realization. Economic development is taken to mean the establishment of some kind of domestic capacity to produce goods and services and generate jobs. Often, the left assumes that multinational companies are damaging to domestic economic prospects, often painted as parasitic on the local economic resources or stifling the prospects of indigenous economic development. The knowledge that profits from business activities leave the country in which they are earned is also unsettling: it feels like the benefits of business are largely accruing to external players rather than the domestic economy, and hence reducing poverty within the country.
But while itâ€™s true that economic development in almost every currently developed country involves and is ultimately powered by the emergence of a domestic capitalist class, looking at the issue from both the historical and the economic perspectives demonstrates that the dominance of international capital in emerging African economies is neither unusual nor necessarily a bad thing.