By Mima S. Nedelcovych, President, Corporate Council on Africa, and
Vice President for International Operations, F.C. Schaffer & Associates, Inc.
These advances are found in new policies and attitudes toward privatizatiuon, stock markets, and regional integration. While in some Africa countries business has become routine, others are lagging behind, with the upswing in armed conflicts a major impediment to the continent's progress, Nedelcovych says.
Many African countries have made significant advances in recent years to reorient their economies toward the private sector, says Mima S. Nedelcovych, president of the Corporate Council on Africa, a nonprofit association of U.S. companies that promotes African trade and investment.
During the 1990s, African leaders have widely embraced a new approach to development and economic growth that emphasizes the private sector over the state, openness to foreign investment and trade, and integration with the world economy. Progress toward these goals ranges from highly successful in some countries to a sharp reversal in others, as armed conflicts reemerge as a major impediment to Africa's advancement.
The new approach has meant fundamental changes for many governments, requiring them to cut regulations, privatize state enterprises, and take other steps to create a more competitive, investor-friendly environment. In southern Africa, Mozambique, Namibia, South Africa, and Botswana are outstanding examples of countries in which reforms have been put in place and business is going ahead in a routine fashion. These countries have become open to the global economy and are successfully attracting investment.
These countries are part of the Common Market for Eastern and Southern Africa (COMESA), a new regional grouping in which, with certain exceptions, business is becoming "normal," in which the priority for foreign businessmen is meeting with their private sector business partners rather than with government officials.
In West Africa, Cote d'Ivoire, Senegal, Burkina Faso, and Mali -- all Francophone nations that share a common currency, the CFA franc -- are also countries in which business has become routine. Nearby Ghana is doing quite well, and there is considerable hope for Nigeria, with its newly elected leaders. Nigeria, the largest single market on the continent with a population of almost 120 million, has many educated people and natural resources that support agriculture, as well as its well-known oil reserves.
But other countries are lagging or going the other way. A tragic increase in armed conflicts is behind much of this. Ethiopia and Eritrea, praised a few years ago as part of the "African Renaissance," are involved in a border war. West Africa has pockets of conflict, such as in Guinea-Bissau and Sierra Leone. In central Africa, there is one horrendous situation -- the conflict in the Democratic Republic of the Congo is acting almost like a whirlpool, dragging in neighboring countries.
The nations involved in conflicts are less likely to move forward. They cannot focus on reforms, such as privatization, because the conflict takes priority. To a large extent, these countries are marginalizing themselves.
AN IMPROVING INVESTMENT ENVIRONMENT
The kinds of activities that attract most foreign investors to Africa continue to be the big-ticket natural resource items, such as petroleum, gas, timber, minerals, and so forth. In these areas, investors can put in money and either get a return fairly quickly, or they can try to mitigate and balance risk through higher potential profits.
But even for these kinds of activities, if the investment environment is poor, companies will go elsewhere.
Africa also has abundant agricultural resources, which are starting to be developed. This is important because agriculture, by its nature, is a major employer. Investments in agriculture, however, usually require a long-term commitment. My firm, F.C. Schaffer & Associates, primarily builds and operates sugar processing facilities in the countries where we do business. Our investments require 5 to 10 years to begin showing a return. Because our investments are for the long term, we get substantially involved in the details of the local investment climate.
From what I have seen as an investor and with the Corporate Council on Africa, many African countries have made significant advances in recent years to deal with problems that in the past have discouraged investment and growth.
Privatization and Infrastructure: Privatization is now widely accepted across Africa. It is tied to infrastructure development since many of the activities being privatized are infrastructure.
An outstanding development in this regard has been power generation. African governments are now willing to accept independent private power producers. This is extremely important to investors who are setting up facilities and need to install their own power generation plants, which is common in Africa. The option to sell excess power to the national power grid is an important factor for firms in determining an investment's feasibility. This new outlook on the part of African governments also represents an important change in attitude that power does not have to be produced by one huge government-owned entity.
There is also increased interest in fee-based facilities. This includes toll roads, such as the Resano Garcia road between Mozambique and South Africa, toll bridges, and airports. Some governments, such as that of Cote d'Ivoire, have improved airport service by allowing private concessions to run the facilities. Privatization of airport operations in Libreville, Gabon, also led to increased efficiency.
Telecommunications is another area where privatization is moving ahead. Because many African governments do not have the resources to properly expand and operate state telephone systems, they have turned to the private sector, which is putting in systems that use the most modern technology and cost less to install.
More and more African governments are seeing that they can encourage development and get a return on their economic infrastructure through appropriate regulatory frameworks without having to be involved in all the details and using up scarce national budgetary resources.
Stock Markets: Another important advance in Africa has been the development of stock markets. This goes hand in glove with privatization because stock markets provide a framework for governments to sell shares of state-owned companies to local investors.
There have been advances in setting up a regional stock market in Abidjan that takes advantage of the West African countries' common CFA currency. Some smaller markets have achieved important successes, such as those in Nairobi and Kampala. The Johannesburg stock market, Africa's largest, lists mostly South African stocks but includes some companies from other Southern African Development Community countries.
Stock markets help attract foreign capital, such as institutional funds, because they give investors an exit. They also allow Africans who are holding their money outside Africa to invest closer to home.
Common Legal Framework and Regional Integration: There are 48 African countries south of the Sahara, many very small. It is extremely important to create uniform business laws, regulations, and practices, such as standard accounting practices, that a group of African countries agree to follow. Common regulations and laws for a grouping of, say, 100 million people, make a region much more attractive. Francophone West Africa has made considerable advances in this regard, in part because of its common currency.
Also crucial to regional integration is the ability to move goods across borders without undue delays. COMESA has achieved some progress in making such movement of goods and people easier.
Bribery and Corruption: The new Organization for Economic Cooperation and Development (OECD) anti-bribery convention is very helpful in combating corruption. Because it outlaws bribery by firms from the industrialized OECD countries, businesses like mine are not put at a disadvantage because we do not pay bribes. But the problem of petty corruption -- of small bribes and gratuities demanded by lower-level officials such as policemen -- continues. This situation stems from governments having too many public employees that are paid too little and, by custom, supplement their incomes with bribes. Unfortunately, this happens in many developing countries, and making changes can take time. The World Bank has developed some programs for attacking this problem, but in the end it is up to each government to properly budget for the services it provides.
IFIs and Debt Reduction: As is the case in the rest of the developing world, the portion of capital flows to Africa that are private is increasing. Nonetheless, many African countries have a continuing need for lending by the World Bank and other international financial institutions (IFIs) to fill gaps not covered by the private sector. Many private investments are predicated on the parallel need for public funding of certain infrastructure. Therefore, public-private collaboration is absolutely essential. The World Bank lending programs also help with crucial development issues such as improved governance and civil service reform. This includes anti-corruption programs that create social safety nets for public employees displaced by reforms.
The IFIs can also help with debt relief, which at this point is simply inevitable. In some countries, interest is being piled on top of interest on top of more interest. These countries cannot move forward without substantial relief.
Debt relief, however, must be selective. If the freed-up funds are going to economic and social infrastructure spending, then the debt reduction is helpful. But if a country uses the funds to spend more on weapons or squanders the money on investments better made by the private sector, that's a different matter. There must be conditions.
Economic Perspectives
USIA Electronic Journal, Vol. 4, No. 3 August 1999