Sub-Saharan African militaries are increasingly expanding their stakes in business sectors and becoming direct competitors to other state-owned enterprises and the private sector.
IHS perspective | |
Significance | African militaries are increasingly creating investment vehicles to participate in business, especially the construction and mining sectors. |
Implications | Military participation will raise the risk of unfair competition, discrimination, and arbitrary decision-making. |
Outlook | Military participation is likely to expand into the cement, landholding, tourism, and natural gas sectors. |
In 2014 IHS noticed a marked trend of defence departments in sub-Saharan countries competing with private-sector industries, such as those in construction and mining. This deepens African militaries' historical involvement in the private sector beyond its gatekeeping role, especially in major contract bidding, by politically connected, usually senior military personnel, in, for example, Angola, Mozambique, and Nigeria. So far only a few African countries' militaries have increased their stakeholding and participation in private businesses. However, the militaries' commercial success in private sector enterprise is likely to create a precedent for other countries and rapidly increase military participation in key sectors, thereby increasing the risk of unfair competition for both local and foreign private investors.
Within Africa there is already a precedent for heavy participation by the military in business, most notably in Egypt. The Egyptian Ministry of Defence has been awarded major contracts valued at more than USD1 billion for infrastructure projects by the Ministries of Health, Transportation, Housing, and Youth. These projects are being managed through three economic ventures controlled by the Defence Ministry: the National Service Projects Organisation, the Arab Organisation for Industrialisation, and the National Organisation for Military Production. It is likely that Egypt's precedent for investing in construction, cement, landholding, and tourism is setting a new trend across the sub-Saharan region, particularly in southern Africa in countries such as Namibia, South Africa, and Zimbabwe.
Unfair competition in Namibia’s construction sector
On 22 September 2014, Namibian Defence Minister Nahas Angula inaugurated August 26 UBM Construction (Pty) Ltd, a fully state-owned entity that will take over all construction requirements for the Namibian Defence Force (NDF). The company, which was registered in July 2013, is the ninth subsidiary of the NDF's corporate wing, August 26 Holdings, and will be headed by NDF Colonel John Namoloh. IHS assesses that August 26 UBM Construction is likely to become a dominant player in Namibia's growing construction sector, and will most probably be favoured by the government and state-owned entities in public tendering processes.
The creation of the NDF's construction arm was conceived by the Minister of Regional and Local Government, Housing, and Rural Development (retired) Major General Charles Namoloh. Angula and Charles Namoloh have also encouraged other government departments, including the Ministries of Education, Safety and Security, and Health and Social Services, to contract August 26 UBM Construction for building projects. Namoloh has stated that he would like August 26 UBM Construction to be involved in the upcoming second phase of the government's extensive mass housing scheme. The company will use ultimate building machine (UBM) technology, which uses prefabricated material at lower cost and shorter completion times than conventional construction methods. The company will also source material from the United States, India, and South Korea.
Despite criticism by the Namibia Chamber of Commerce and Industry and Namibian Employers Federation about the lack of appropriate skills in the NDF, it will probably initially focus on NDF building projects, such as the planned USD40 million military hospital in the capital, Windhoek. In future, the company is likely to seek contracts to build education assets, housing, and transport, and energy and water infrastructure. Private construction companies, such as Italy's Stefanutti Stocks and South Africa's Murray & Roberts, are likely to face increased risk of discrimination in public bidding processes. However, private companies that enjoy close relations or influence with political leaders will be more likely to favour the NDF's construction arm.
Brigadier General (Rtd) JV Auala is listed in the Namibian business register as chief executive of August 26 Holdings. Other August 26 Holdings companies include Sat-Com (military communications), Windhoek Machine Fabrik (manufacturer of the Werewolf mine resistant ambush-protected (MRAP) vehicle), August 26 Industries, and August 26 Textile and Garment (military, school, and miscellaneous uniforms and linen). All these subsidiaries are led by retired NDF personnel. August 26 Holdings is also responsible for supplying food contracts to the Namibian Ministry of Defence. This was facilitated through the August 26 Logistics military company. The shareholders are listed as former Windhoek mayor Matheus Shikongo and South African national Sarel Oberholzer. This was revealed during a 2013 announcement of the contract's extension to around USD450 million over the next 10 years.
South Africa moves towards centralised bidding process for public works
In South Africa, the Defence Works Formation (DWF) that was formed in 2011 aims to replace government-tendered public works services, and its host of construction subcontractors, with an in-house defence capability. The DWF is different to Namibia's military business plans as the maintenance and construction of South African National Defence Force (SANDF) projects have since 1994 been conducted by private sector companies tendering through the government's procurement process, rather than the SANDF itself branching out into the private sector.
The DWF conducts in-house training and maintenance, as well as manages new Department of Defence-related construction projects, using SANDF personnel. While in operation for several years, the DWF is still in a process of organisation and capacitation. Once fully operational, the DWF is likely to increase the risk of unfair competition during the contract bidding process for construction companies that are not embedded within the DWF. At particular risk are South African construction companies Murray & Roberts and WBHO, which have both engaged with the SANDF on construction projects, including for the South African Navy and various infrastructure-related programmes. Other companies involved with Department of Public Works' projects and at risk of being at a disadvantage on future projects are Aveng, Basil Read, Esorfranki, Group Five, Raubex, and Stefanutti Stocks.
However, the DWF currently lacks the operational capability and budget to handle its own in-house infrastructural requirements. As such, construction and maintenance projects are still being channelled through the Department of Public Works and therefore private businesses are still able to tender for Department of Defence-related projects.
Zimbabwean diamond mining dominated by military
The Zimbabwe Defence Forces (ZDF), most notably the Zimbabwe National Army (ZNA), has been involved in private joint ventures with Chinese businesses in the agricultural and mining sectors for several years. The ZNA holds shares in China Africa Sunlight Energy, which is involved in a USD2.1 billion coal mining, methane gas extraction, and power generation project in Matabeleland North. IHS sources report that the ZNA could be providing on-the-ground mining labour in the form of vehicles, airlift, site security, or even manpower. The opposition Movement for Democratic Change (MDC) has also claimed that the ZNA is involved in diamond mining operations in Chimanimani, as well as in an equal partnership with China's Anjin Investments Ltd in the Chiadzwa diamond mining fields. The ZDF has not publicly commented on these allegations.
Outlook and implications
Military investment vehicles are likely to use their political relationships to exert influence on public tendering processes. In Namibia, although companies such as Murray & Roberts will be allowed to tender for Namibian projects, subsidiaries of August 26 Holdings will have a strong advantage in contract allocation. On the other hand, companies that become partners with military investment vehicles are more likely to be favoured.
The risk of unfair competition, discrimination, and arbitrary decision-making especially during the contract bidding for foreign investors is particularly high in the construction sector in countries where the military is developing investment vehicles. Moreover, contract reviews and reallocation will also become more likely in cases where foreign investors do not enjoy sound relations with the government. Countries that are ramping up defence spending, such as Angola, Mozambique, Ethiopia, and Sudan, will be most likely to create such vehicles. Moreover, it is likely that military investment vehicles will also move into lucrative mining, cement, landholding, and tourism sectors, based on the Egyptian precedent. Given the nascent lucrative natural gas sector in countries such as South Africa, Mozambique, and Tanzania, it is likely that military investment vehicles will also be deployed to secure stakeholding in land (that is then leased to foreign investors), provision of maritime equipment, and logistical services. Although militaries' lack of expertise and technical knowledge will prevent these from becoming operators in the natural gas sector, it is likely that foreign investors will be encouraged to become partners in these in future bidding and tendering rounds.