FEBRUARY 1980 - VOLUME 1 - NUMBER 1
Lonrho's Strong-Arm Strategy
Great Britain's Lonrho Corporation, led by its controversial chairman, Rowland "Tiny" Rowland, is attempting to force a cutoff in foreign aid to financially-troubled Tanzania. The reason: a dispute over compensation for assets seized by the country
by Jonathan Ratner
In an apparent attempt to win the maximum possible compensation settlement from Tanzania for assets it seized -17 months ago, Great Britain's Lonrho Corporation has launched a campaign to discredit the financially-troubled East African nation in the eyes of its major public governmental and bank lenders.
Tanzania expropriated the 19 Lonrho-held companies, most of them tea estates and trading firms dealing in automotive and agricultural products, citing the multinational's continued "meddling" in the politics of Southern Africa. Since the September 1978 expropriation, Lonrho and Tanzania have engaged in acrimonious negotiations over what constitutes fair compensation for the assets. The two sides are reportedly far from a settlement, with Lonrho demanding some $40 million-about eight times what Tanzania is offering.
In recent months, the often-controversial multinational, which earns 70 percent of its profits in Africa, has called out the heavy artillery against Tanzania. It has fired off cables and letters to the World Bank and the British government, as well` as to a host of other major multilateral and bilateral lenders, claiming that Tanzania does not intend to provide compensation for the seized assets, and urging these institutions to withhold funds from Tanzania as a result. "
Lonrho has focused its campaign on the World Bank, which in recent years has become Tanzania's largest public source of aid, extending over $100 million in new loans annually. In a November cable to World Bank President Robert S. McNamara, Lonrho deputy chairman George Bolton -asserted that "Tanzania has no intention of compensating us in full, fair and prompt fashion" and asked for McNamara's "full cooperation in denying Tanzania any aid." Additionally, Lonrho officials have attempted to convince the British Government, one of Tanzania's major sources of bilateral aid, to end its financial support of the country. In particular, Lonrho called on its home government to cancel loans recently extended for a major new Tanzanian road project.
Lonrho's broadsides have yielded the giant conglomerate no concrete results to date. Tanzanian President Julius Nyerere has not responded to the attack, stating that his country still stands ready to negotiate a compensation settlement. Neither the World Bank nor the British Govern ment have expressed sympathy for Lonrho's view of the dispute.
Nevertheless, the corporate campaign comes at a time when Tanzania can ill afford to fall into disfavor with its major creditors. Countries throughout Africa have been hard hit by the combination of skyrocketing petroleum prices and falling revenues from exported agricultural commodities. Tanzania's economic problems have been compounded by last year's military campaign to overthrow Ugandan dictator Idi Amin. The British government estimates the war effort cost an estimated $250 million, the majority of it in precious foreign exchange. Since last spring, Tanzania has hovered near the brink of economic collapse.
The recent public posturing of Lonrho over the compensation dispute would be considered extraordinary for most major multinationals, but it represents far from surprising behavior on the part of Lonrhoformerly the London and Rhodesia Mining and Land Company-and its chairman, Rowland "Tiny" Rowland.
In the early sixties, Rowland gained control of Lonrho at a time when the company was still a minor cattle-ranching and mining enterprise based almost exclusively in Rhodesia.
Today, Lonrho has operations in more than 40 countries in Africa, the Middle East and Europe, and profits that topped $200 million in 1978. Its assets include newspapers, shipping lines, platinum, gold and copper mines, millions of acres of ranch and farm land, and hundreds of wholesale and retail trading firms.
Two principles have predominated in Rowland's strategy for financial success. First, he has been a gambler, willing to take great financial risks for potentially greater gains. Rowland first started Lonrho's march to financial power in the wake of decolonization in Africa, when jittery colonial businessmen fled the continent, offering their assets for sale at low prices. More often than not, Lonrho stood first in line to buy such assets. Its bargain-rate acquisitions range from the Ashanti Gold fields in Ghana to the Fast African Standard, Kenya's leading daily newspaper.
The second characteristic of the Lonrho modus operandi-and one for which the company has come under criticism from many quarters-is it penchant for interfering in the politics of African states. During the 1974-75 civil war in Angola, for instance, Lonrho actively backed the forces of Jonas Savimbi's UNITA faction, using company jets to transport UNITA leaders to assorted meetings. According to New African, through its subsidiary Armitage Industrial Holdings, Lonrho also airlifted mercenaries and arms to UNITA forces. Often, Lonrho has sought to win political favor through personal contacts, with members of the families of leading politicians. Among those who have served on Lonrho's board of directors are Gil Olympio, son of Togo's first president, and Udi Gecaga, son-in-law of the recently deceased President Jomo Kenyatta of Kenya.
At the heart of Lonrho's questionable business practices, however, lie their operations in Rhodesia, now undergoing a transition to majority rule under British supervision. For years, critics charged that Lonrho's Rhodesian subsidiaries violated the economic sanctions imposed by the United Nations against the white-ruled rebel colony. Lonrho claimed its Rhodesian companies met the sanctions guidelines by being "independent"-- with all control in the hands of the local Rhodesian board and no money passing between the parent company and its Rhodesian subsidiaries. In 1976, however, British government investigations revealed. Lonrho's close cooperation with its Rhodesian interests, including the financing of two major new Rhodesian mining operations.
Further, in the political sphere, Rowland for many years attempted to undermine the alliance of the Patriotic Front, whose two member organizations fought against the white minority government from separate bases in Mozambique and Zambia. According to British press reports, in September 1977, Rowland orchestrated a secret meeting between Rhodesian Prime Minister Ian Smith and Patriotic Front co-leader Joshua Nkomo, in an attempt to break up the Front and draw Nkomo into a separate peace with the white minority. In justifying his government's expropriation, Nyerere specifically cited Lonrho's sanction busting and the company's "meddling in the affairs of Southern Africa." particularly in Rhodesia.
The current conflict with Tanzania remains far from resolution; no compensation negoti ations have been held since the recent cables and the World Bank and the British Government seem intent on continuing to ignore Lonrho appeals for punitive actions.
A dispute over what Lonrho has presented as a basic fact of its case has substantially undermined the company's claims. Lonrho claimed that Tanzania has prevented Coopers and Lybrand, the accounting firm conducting an independent valuation of the seized assets, from releasing the results of its audit to Lonrho. Spokesmen for the accounting firm have indignantly labeled this assertion untrue, stating that they have yet to complete the audit.
The company's. reputation in the United Kingdom has no doubt damaged its credibility with the British Government. Lonrho's critics in London have been numerous, especially since a 1973 boardroom dispute over Rowland's continued leadership of the company revealed Lonrho's extensive use of tax havens to pay addition fees to some of its directors. These revelations prompted Conservative Prime Minister Edward Heath to label the company, "the unpleasant and unacceptable face of capitalism." In a conflict of interest not unusual in the Lonrho network, the company's overtures to the British government in the current dispute were made by Edward Du Cann, a Lonrho director who also serves as a Conservative Member of Parliament. In late November, 'the government rejected Du Cann's call for an aid cutoff.
The World Bank chose to acknowledge the Lonrho cable, but has remained distant from the substance of the dispute. Jochem Kraske, director of the World Bank's East Africa division, says that World Bank-Tanrania relations continue to be good. "We do not see in the present circumstances that any drastic action is called for. Tanzania has acknowledged that there is some liability and seems prepared to negotiate."
Some World Bank officials who have followed the dispute privately suggest that Lonrho's broadside against Tanzania may not make financial ' sense for the company. Tanzania's President Nyerere is well known for his willingness to sacrifice foreign aid when he believes principles are at stake. In November, Nyerere rejected an aid program proposed by the International Monetary Fund that included conditions he believed would place intolerable hardships on his country's peasant majority. "People who think that Tanzania will change her cherished policies of socialism and self-reliance because of the current economic difficulties are wasting their time," Nyerere said.
The same dynamics may be at work in the Lonrho dispute. "(t would seem to me that private negotiations are in order," said one Bank observer. "Instead of sending cables all around the world, Lonrho should be trying to quietly negotiate. I think Rowland may be making a mistake here, by underestimating Nyerere's resolve to withstand strongarm tactics."
To date, the Tanzanians have maintained their equanimity in the dispute. "We promised we would negotiate fairly," says Felix Mrema, the economics officer in Taniania's United States embassy who serves as his country's lion at the World Bank. "We are in the process of negotiating. These Lonrho cables are just a way of pressuring us to accept their figure."