Foreign Direct Investment is viewed as a major stimulus to economic growth in Africa because of its perceived ability to deal with major obstacles such as shortages of financial resources, technology, and skills. This has made it the center of attention for policy makers in Africa.
The Economic Report on Africa by the United Nations Economic Commission for Africa advocates that FDI is the key to solving Africa’s economic problems. Bodies such as the IMF and the World Bank have suggested that attracting large inflows of FDI would result in economic development. Sub–Saharan African governments including Zambia are very eager to attract this FDI.
Until recently nobody has taken the time to interview the largest pool of Investors-Coprprate USA. Below is an extract from the survey done by Baird’s CMC in partnership with the U.S. Chamber of Commerce. The survey reveals why corporate USA continues to take their money elsewhere rather than Africa, despite the loud drums African policy makers continue to beat about how Africa is ready for FDI.
A survey of attitudes toward corporate investment in Africa among leading U.S. corporations was conducted with information gathered between January and November 2008 in a series of closed door interviews with senior officers of 30 American Fortune 100 corporations by senior associates of Baird’s CMC.
Below is a summary of the findings:
Africa is the world’s second largest and second most populous continent after Asia, covering 20% of the world’s total land area, and home to 14% of the world’s human population, yet Africa remains the world’s poorest and most underdeveloped continent
Africa has not received its “fair share” of global Foreign Direct Investment (FDI) flows.Since the early 1980s, Foreign Direct Investment (FDI) flows to Africa has been averaging only 2.2% of the global total, while Asia received no less than 17.3% of the total.
Overall, the business case for investing in Africa is less compelling than for its competitors To make itself more attractive for US investment, Africa should:
– Invest in education , health and infrastructure
– Ensure the rule of law and a business-friendly climate for all investing companies
– Show it is serious about attracting foreign investment
– Market itself as aggressively as other regions of the world
– Demonstrate opportunity cost of not investing
USA Inc. is more interested in Africa than before, because the African market appears increasingly attractive, but Africa has tough competition and high hurdles for US investment. Education is at the top of the US corporate wish list for Africa; “educate your people so that we can employ them”
The African countries that hold most interest are South Africa and some countries in the North, like Egypt; there are also some pockets of interest in West Africa, most notably Ghana, Nigeria and to some extent Angola; while some in the South (Botswana and Mozambique) and East (Uganda and Kenya), are also being watched
WHY HAS AFRICA NOT ATTRACTED MORE INTEREST FROM THE U.S BUSINESS COMMUNITY?
Rule of law:The rule of law does not prevail to the degree required to make Africa an attractive investment destination. This applies to corporate, societal, and criminal law
Attraction: While the enormous natural resources are an attraction, Africa does not offer a sufficiently large middle class of consumers or show consistent economic growth that could promise a future market. Most African countries are small and have poor markets, and there are barriers to regional markets such as taxes and the freedom of movement of people and goods
Risks versus rewards :Given the currently perceived risks in Africa, the rewards have to be very high to make it worthwhile to invest. Presently, U.S. corporations say that there are very few visible promises of future returns high enough to justify significant interest in investing
Supportive business framework Transportation and communications infrastructure, trained or trainable human resources, and equitable trade and employment practices are insufficient to support corporate investment
A welcoming environment African countries are not doing a sufficient job of providing education and health services to the potential workforce, which makes the potential hire-able local insufficient to support investment.
U.S. Business Wish List
“Educate your people so that we can employ them.”
To attract FDI, corporate America asks African nations to do several things:
Invest in the health and education of the African people to create a large pool of skilled and productive human resources.
“There need to be investments in education and health so that there’s a growing layer of the population that eventually can afford to buy our products.”
* Invest in and maintain infrastructure — transportation, communications, electricity, and security — so that there will be a reliable society in which to operate.
“Are there investments in infrastructure — roads and hospitals and electricity grids and telecommunication grids?”
* Build a functioning legal system to ensure the rule of law, transparency, and fair play.
“Create environments in which you feel reasonably confident that your intellectual property rights and other legal protections are in place to be able to do business without being blindsided.”
* Create a positive climate for foreign investments by reducing bureaucratic processes, eliminating corruption, and reforming tax systems, irrespective of country of origin.
“Executives need to feel confident that the government is going to honor contracts and not change the rules of the game when we need to proceed with any kind of business transaction.”
* Ensure stable political environments — that may or may not be based on western democratic principles — that work toward the common good of all stakeholders in society