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Investing in Africa

May 22, 2009


I was recently contacted by Fabiane Dal-Ri from Baird’s Communications Management Consultants about a study her firm conducted in partnership with the Africa Business Initiative of the U.S. Chamber of Commerce concerning attitudes of American business leaders towards investing in Africa. The study interested me because Enterra Solutions® has plans to move into the African market with its Development-in-a-Box™ offering. The study, entitled The Conversation Behind Closed Doors, is “an inside-the-boardroom survey of attitudes toward corporate investment in Africa among leading U.S. corporations. The information was 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.” The topic is extremely important because, as I have consistently maintained, sustainable development doesn’t take hold in a country until it can attract foreign direct investment. The study’s Executive Summary provides this overview:

“U.S. executives point out that Africa is only one of many possible destinations that American corporations consider for investment. Investment is highly competitive, and many countries are vying to become the destination of choice for capital. That said, U.S. companies in some sectors, particularly technology, now regard Africa as the last frontier for growth. These companies believe that Africa, with its market of about 1 billion people, can no longer be ignored. Even with this interest, Africa faces tough competition and huge hurdles to attract U.S. investment. Globally, competition for American FDI is high. 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 they rarely consider African nations. Further, news about Africa is mostly about chaos and unrest. 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. Some African countries are making special efforts to assist foreign companies that invest. For example, Nigeria’s president regularly engages with the local leaders of foreign companies to help cut through bureaucratic tape. U.S. corporations need a strong and specific draw from Africa to make investment worthwhile. This can be the pull of a big market or a big source of critical raw materials 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 strong to be effective in the near term.”

The news release announcing the availability of the report provides the following facts about Africa, in general, as well as specifics findings of the study:


  • 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 averaging only 2.2% of the global total, while Asia received no less than 17.3% of the total
  • Corporate America is interested and watching Africa closely; they see pockets of great potential US Technology companies are most attracted to investing in Africa
  • 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


The study’s conclusions track well with my own assessment of the areas in Africa most ready to move forward as well as what they must do to look more attractive to potential investors. One thing not mentioned in Baird’s CMC list is security. Security is the sine qua non for attracting foreign direct investment. As the news release notes, the study will eventually include two parts. This first part helps us “understand how US corporations view Africa as an investment destination and what their requirements are for investing in Africa on the same scale as their investments in the rest of the developing world.” The second part will provide “the response of African political and government leaders to these private sector views.” I like this format. It presents real world perceptions and then asks, “What are you going to do about it.” Too often, political leaders ignore academic studies as ivory tower exercises. African leaders would be remiss to ignore a study that provides them with a confidential assessment of how their countries are viewed by the business leaders they are hoping to court as investment partners.


The release goes into a little more depth concerning the reasons that Africa remains a less attractive region than others for FDI. They include:

“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.”

That list should be familiar to readers of this blog. I have repeatedly talked about pre-conditions necessary to attract FDI. If I were to highlight two factors that make many African countries unattractive they would be security and corruption. Those two factors alone can undermine all other efforts that might be made to make a country more attractive. Companies are not willing to risk the lives of their employees because an environment is unsafe; nor are they willing to waste scarce resources lining the pockets of corrupt bureaucrats. Participant quotes drawn from the study are particularly telling. On these two subjects, one participant said, “[Africa is] dangerous in terms of political and economic stability and dangerous also from a personal security point of view, whether it is related to criminality or diseases.”


The report looks to be a valuable addition to the literature of development. Whether it is read by the right people (i.e., African political leaders) and whether they do anything as a result remains to be seen. Since part two of the study will contain interviews and responses to part one of the study, one assumes that many African leaders will get a chance to read and digest the report. Since I have been working with the U.S. Chamber of Commerce in Iraq as co-chair of its Iraq Initiative and as co-chair of its Kurdistan Region of Iraq Investment Task Force, I know that the Chamber’s leaders are not starry-eyed idealists who believe that the results of a single study will magically make things better in Africa. On the other hand, they are not the type of leaders who see a bad situation and avoid dealing with it. The study is a good first step towards helping African leaders understand that they need to take seriously the opinions of business leaders who could provide their countries with investment capital. Without such investments, African leaders will never be able to foster a sustainable middle class that can serve as the foundation of further development. If African leaders respond positively to the report’s findings, they can help their countries move up on the World Bank’s Doing Business Index. When they achieve scores as high as countries that do attract FDI, they will know that they are on the cusp of a brighter future.

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