African militaries expand role in business sector

Sub-Saharan African militaries are broadening their role in the business sector, competing directly with other state-owned enterprises and private companies for the award of publicly tendered contracts. Military participation raises the risk of discrimination in the public tendering process for major contracts in the construction, mining, energy, and other sectors.

Last year, Namibia launched August 26 UBM Construction Pty. Ltd., a state-owned corporation headed by current and former Namibian military officials that will bid on contracts in the country's growing construction sector. Although private companies, including foreign interests, will be allowed to tender for Namibian projects, the concern is that the state-owned firm will have a decided advantage in contract allocation-despite the absence of a track record in the provision of building services.

If the venture proves commercially successful, it is likely to encourage other countries to increase military participation in key sectors, thereby increasing region-wide risks of unfair competition for both local and foreign private investors. Countries now ramping up defense spending, such as Angola, Ethiopia, and Sudan, are most apt to create such investment vehicles.

Within Africa there is already precedent for heavy participation by the military in business, most notably in Egypt. The Egyptian Ministry of Defense has been awarded contracts valued at $1 billion for infrastructure projects by the government's health, transportation, housing, and youth ministries. It appears that Egypt's precedent for investing in construction, cement, landholding, and tourism may be followed across the sub-Saharan region, particularly in Namibia, South Africa, and Zimbabwe.

Given the emergence of lucrative natural gas sectors in countries such as South Africa and Tanzania, it is likely that military investment vehicles will also be deployed to secure stakeholdings in land (which is then leased to foreign investors), provision of maritime equipment, and logistical services. Already, in Mozambique's Rovuma Basin, where vast amounts of natural gas have been discovered and port infrastructure is being developed in Pemba and Palma, provision of logistical services has been awarded in a closed tender to ENH Integrated Logistics Services, a newly formed subsidiary of the country's publicly owned National Hydrocarbon Company with military ties.

Local Mozambican political authorities apparently envisage controlling gas revenues by monopolizing the sector's logistical services-a model inspired by Angola's investment framework for its oil and gas sectors. The imposition of a monopoly in gas sector logistical services has triggered resistance from the two main investors in the project, which had favored a public tender for the sub-lease of the logistical bases.

In this instance-as in others where local vendors are awarded a contract under an opaque tendering process-the two private operators are likely to be charged premium prices for the logistical services rendered with no guarantee as to their quality.

Robert Besseling is principal analyst, sub-Saharan Africa, IHS Country Risk