10 June 2009

African Countries Must Compete for Investment Capital

Report says many see Africa as world’s ”last frontier” for economic growth

 

Barnabus Ossai arranges boxes of imported computer-printer paper for sale in his small shop in Lagos, Nigeria.

Barnabus Ossai arranges boxes of imported computer-printer paper for sale in his small shop in Lagos, Nigeria.

By Charles W. Corey
Staff Writer

Washington — Africa faces competition for U.S. investment capital in a highly competitive global marketplace, but the continent also is seen by many American business executives as a market that cannot be ignored — the “last frontier for growth.”

Those are two of the main conclusions in “A Conversation Behind Closed Doors: Inside the Boardroom. How Corporate America Really Views Africa,” a report recently released by the U.S. Chamber of Commerce.

The report’s authors polled top decisionmakers in 30 leading multinational corporations in business sectors from aerospace and health care to media and transportation. Anonymity was guaranteed to all respondents. The U.S. Chamber of Commerce is the world’s largest business federation, representing more than 3 million businesses and organizations of every size, sector and region, as well as 112 American chambers of commerce (American business groups) in 99 countries.

Competition for America foreign direct investment is high, the report says. “Countries from all regions showcase their advantages, align their offers to U.S. needs, clamor for attention, and invest in their own countries to attract additional investment. Consequently, U.S. corporations do not lack investment choices, and rarely consider African nations.”

The report states that news media reports about Africa often focus on chaos and unrest, and “Africa is not active or aggressive enough about attracting investment; the voices of the few countries that are making an effort get lost in the surrounding negative noise.”

However, the report credits some African countries for making special efforts to assist foreign countries that invest in Africa and particularly praises Nigeria’s government for regularly engaging local leaders of foreign companies to help cut through cumbersome and sometimes meaningless bureaucratic requirements imposed by local governments.

“U.S. corporations need a strong and specific draw from Africa to make investment worthwhile,” according to the report. “This can be the lure of a robust market, or a belief that there is a competitive advantage to early entry into African markets. The survey data show that few of these pulls exist or are not sufficiently enticing to be effective in the near term.”

ACCENTUATING THE POSITIVES, OVERCOMING THE NEGATIVES

The survey identifies several key factors for influencing and attracting foreign direct investment:

• a strong rule of law with an independent judiciary that can arbitrate any disputes in an unbiased manner;

• a pro-investment environment that breaks down trade barriers and promotes the free movement of people and goods;

• a promise of rewards that outweigh the risks undertaken by investors; and

• a supportive business framework with transportation and communication infrastructure, trained or trainable human resources, and equitable trade, investment and employment practices.

Impediments to investment cited by the report include an image that many African countries are fraught with difficulties such as poor investment climates and corruption, with “the apparent lack of political will to curb it.” Additionally, “executives do not believe that they are at a competitive disadvantage because they are not investing in African countries” and therefore are reluctant to invest.

The report, based on polling of private sector entities, is the first of two planned on Africa’s investment climate. A second will be based on a survey of the public sector, which will be conducted over the next several months.

Africa is home to 14 percent of the world’s population. More than 1,000 languages are spoken in Africa, and the continent encompasses some 53 countries, covers 20 percent of Earth’s total land area and contains about 30 percent of its mineral reserves.

Yet U.S. investment in sub-Saharan Africa stands at a “very small percentage” of worldwide total U.S. investment, according to a Congressional Research Service report to Congress published in 2008. At the end of 2006, the report says, U.S. investment in sub-Saharan Africa stood at $13.75 billion, or less than 1 percent of total U.S. investment abroad.

U.S. investment in Africa is heavily weighted toward natural resources, with 47 percent (excluding Egypt) in the mining and petroleum sector, compared to 13 percent in manufacturing, 22 percent in holding companies and 5 percent in wholesale trade.

The full text of the Chamber of Commerce report is available on the organization’s Web site.