16 Jun 2009 |
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Africa: The New Investment Village Elimma C. Ezeani If some financial experts are to be believed, Africa’s capacity to yield benefits to both investors, their local partners and, the countries wherein they carry out businesses is phenomenal. Virgin territory, less restrictive regulations on cartels and monopolies, very little competition from local investors and service providers, a large labour force, a less restrictive business environment and governments desperate to shore up the dwindling national incomes and foreign reserves, make investment extremely attractive. This is in spite of the obvious constraints posed by recurrent political instability, poor financial systems, below-average infrastructure and, the much-touted tangible corruption allegedly inherent in the political and economic structures of all African countries. However, since profit is the main objective of business and where profits can be made at reduced overhead costs, Africa’s problems are not altogether sufficient to deny that in a global recession, the greater priority should be to invest in a territory where a business can spend little and make a lot more. The concern however is for Africa itself: when the investors have counted their money and are satisfied and, the governments can proudly point to the inflow of capital into the economy, can the ordinary man or woman on the street be content that their welfare is assured? Is what is good for investors good for the ‘village’? The answer is not as easy as one may think and there are greater, though less publicly analysed factors which the new pursuit for investment in the African continent must not ignore: 1. The careless consideration for Africa’s diversity and its needs Africa’s land mass spans across thirty million kilometres and covers just over twenty percent of the Earth’s land surface. It is home to almost fifteen percent of the world’s human population. Its diverse citizenry are a study of the true multicultural environment – those who claim to be African include those who are black, white and every other possible colour in between. The cultures, customs and traditions of African people are as extensive and as different as the innumerable languages spoken in the various ethnic groups or tribes within each independent territory. The Continent is home to fifty-three independent countries with a number of islands associated with it. The wealth of natural resources in Africa is breathtaking - from the endlessly fascinating eco-systems to the beautiful landscape; from rich diamond and precious stone quarries to a vast quantity of crude oil and other minerals. Yet, Africa has become nothing more than a pseudonym for a big village. Africa is no longer marketed as a Continent with its wonderful tapestry of diversity; it is now mentioned casually as probably the third best place for investment, after China (an Asian country) and India (another Asian country). Africans themselves are complicit in this carelessness. Both businesses and private individuals readily refer to ‘ Africa’ when they wish to say anything about any of the various locations or attributes of the Continent. Some may argue that there is nothing wrong with this practice at least not in terms of investment. They will be wrong in their argument. Each African country represents the many citizens living and trying to make a living there. Each business environment is distinct as are the needs and concerns of the various socio-political environments. The laws and regulations vary from one country to another. The available skills in the work force vary. The available opportunities for investment are also diverse. What Uganda needs in terms of urgent investment, is quite different from the needs of Ghana. The business climate in South Africa is distinct from that in Chad. The skills available in Nigeria’s labour force are not exactly the same as those in Eritrea. Botswana’s natural resources differ from the natural endowments of Morocco. Some African countries are richer than others. Some have a longer history of business regulation. Therefore, the wholesale marketing of Africa to would-be investors as an investment opportunity without defining any specific business environment is an inadequate representation. On the whole, bearing in mind that Africa already has the negative publicity of being an economically unviable business location, the best investors will be deterred from taking the trouble to identify viable opportunities in the Continent, where they exist. At best, it means that investors will not take the trouble to pursue investments in the Continent and will continue the detrimental pattern of generalisation about the people and the general African economy. Worse, it limits the potential of any chosen investment environment to make far-reaching gains from the investment– restricted on their knowledge, investors will automatically base their business decisions and actions on prior and perhaps, insufficient general knowledge. 2. Exploitation When the local economy considers that a healthy national income is more important that a healthy society, investments of all kinds including those activities considered risky and unsafe in the home country, will be accepted. Consider the massive investment by British American Tobacco into cigarette manufacture in Nigeria and other African countries while at the same time the British National Health Service is actively funding, implementing and supporting anti-tobacco campaigns. Consider that smoking in communal areas, advertisement and, the sale of cigarettes to minors is banned in the UK, while child hawkers ply cigarettes, cigarettes are publicly advertised and actively promoted and people smoke freely in communal areas across Africa – Africa is a gold mine for manufacturers like British American Tobacco. See: http://mediacook.blogspot.com/2008/07/big-tabacco-whats-bottom-line.html for comments and links on a documentary by a British entrepreneur criticising these double standards. Obsolete machines, fraudulent practices, poor employment benefits, corrupt practices, criminal conspiracy, and flagrant abuse of national laws – the list is endless. Investors have their own interests and motives and for countries with poor public awareness and low living standards, exploitation is inevitable. See for example, a critique of China’s investments in Africa and the implications therein: http://www.scribd.com/doc/13050037/Chinese-Investment-in-Africa-and-Implications-for-International-Relations-Consolidation-of-Democracy-and-Respect-for-Human-Rights-The-Case-of-Zambia 3. The Implications of Foreign Direct Investment (FDI) There is more to FDI than the injection of funds into a national economy and the creation of employment opportunities. Investment, including local investment always has its collateral damages. Big firms often muscle out small independent private holdings and multinational corporations with their huge capital, technical, manpower and political wealth will inevitably outbid smaller entities even in a transparent bid for tenders/contracts. An unskilled labour force; a labour force which cannot compete globally or respond appropriately to the demands of foreign conglomerates, will still fail to satisfy job advertisements placed by foreign businesses. The fact that businesses must recover their investments must not be ignored - they have to employ people they consider to be suitable. Most times, these people will be foreigners or at best, a few nationals fortunate enough to have gained the commensurate knowledge and experience abroad. It may then happen that some local people will lose their jobs or find it harder to gain employment. As the Nobel Laureates Armatya Sen and Joseph Stiglitz have respectively pointed out in many of their works, without social safety nets (health, social security benefits, adequate compensations and pensions etc), those in developing countries who find themselves without work or suddenly unemployed will be at a greater loss. As will the country burdened with more unemployed persons. Huge investments also incur huge responsibilities and huge losses. Having invested in a country, it is often believed erroneously, that an investor is in some way absolutely altruistic or at least, is keen on corporate responsibility. Apart from very few organisations such as the FairTrade Organisation, who have expressly devoted their investments to providing direct assistance to the individual producer, this has not been the case. With the objective of making more money for the company, there have been unsurprisingly, a number of corruption and malpractice cases involving top personnel of large corporations; cases which have brought to light the huge financial losses suffered by countries with greedy leaders and greedy investors. See a report on Nigeria, Halliburton and the charges of corruption against corporations and the country’s political leaders: http://www.nigeriavillagesquare.com/index.php/content/view/12180/55 . There is another consideration. Investments by foreign firms are primarily opportunities for greater returns on shareholder interests. By the time a company seeks to invest in any African country, it already has shares apportioned beyond the territory it seeks to operate in, at times even often outside the Continent. Unless it invites indigenous staff to purchase newly created shares or floats same for the public on the local stock market, local persons are not likely to have any direct share in the profits of the company. Ultimately, it is the intangible ‘national’ wealth that is increased. Given the state of many territories wherein there has been FDI across Africa, it is clear this national wealth suffers from inappropriate redistribution. 4. Regulating the internal business environment Whether investment is FDI or is by local entrepreneurs, the regulation of the internal market and the business environment is imperative for the investment to succeed and for the effective wealth redistribution mentioned immediately above. A strong legal system and a competent structure for efficient business regulation must be in place. Laws cannot be arbitrary and so dynamic that they change with every new entrant in the investment arena or, are manipulated to satisfy every political whim. An effective, independent judiciary, a competent legal work force, easy access to regulations and, a clear, non-duplicitous administrative system are essential. Employment laws and welfare regulations, guidelines on local content applicable to the investment (including labour, resources, expertise, machinery, etc) must be carefully considered before being signed into law. Rules on environmental protection and corporate social responsibility must also be well-established before a country throws its doors open to investment. This is not only with reference to FDIs; indigenous entrepreneurs are also wont to manipulate regulations for their benefit. 5. Infrastucture Apart from the well known deficiencies of poor power/energy supply, water, etc, which are clear contradictions to policies on investment and industrialisation, there are other aspects of infrastructural requirements necessary for a wholesome investment climate. First, is political stability. Constantly changing political power only encourages bribery and corruption as governments seek to take what they can while they can, while investors attempt to make as much profit as they can in the unsteady climate. A country with a stable government structure not only at executive level, but also across government offices, agencies, the judiciary and the legislature, is better equipped to entrench a system of regulation and wealth distribution. It will also attract more altruistic investors – those businesses who wish to invest in the society wherein they operate by way of community development efforts but who do not wish to spend on certain ‘miscellaneous expenses.’ Such expenses include bribing politicians and influencing the legal systems and processes of their own countries and the countries where they have investments. Second, transport and security are extremely important areas of infrastructure necessary for effective investment. Efficient roads, rails, air and water travel systems are necessary to connect people and goods. Security is imperative: no investment is safe if in addition to the nebulous global financial circumstances, businesses cannot guarantee the safety of their personnel, their equity, or the infrastructure they have put in place. Third, is the stability of the learning and educational system. The academic curriculum must reflect the country’s desired objective – there is no point in holding a country out as an investment opportunity when the populace have not been educated on their potentials, the needs of their country and how they can make contribution themselves. The academic calendar must run uninterrupted and students must be able to study in an environment conducive to learning. Rather than build new structures, existing libraries and Research and Development centres must be well equipped with both ancient and modern texts for academic research (but only modern, functional, technical equipment where needed). Funding should be made available to innovators and private inventors or aspiring businesses by way of credit facilities, government sponsorships or private endowment. 6. Meaningful expectations from the Investment Africa continues to hoist the flag of a needy village: it readily admits in any international forum that its countries are less developed than others in the West and so deserves special treatment. Even in this new role as an investment paradise, the Continent still markets itself as a good investment opportunity precisely because it is poor. As such, money becomes the main issue – the investment is not to recreate wealth in the society but to provide more money for reasons never clearly stated by national governments. Increasing the national income and the income from taxes are not and should not be the only contributions investors make in a country. Where a government is not able to provide funding for various adjacent needs, investment agreements can include such facilities as ensuring waste removal, environmental preservation and protection, investment into the health and educational sector and other similar areas of need – as responsibilities of the investor. However, governments must be clear on the kind of investment they wish to attract. Researches and studies should be undertaken to determine the areas of opportunity. The risks and rewards both to the investor and to the country must be ascertained. Investors always undertake studies assessing the opportunities and rewards for the investment. It is not too much to expect countries and local partners to do the same for their own benefit. See for example an appraisal on America’s recent study on investment opportunities in Africa: http://www.bizcommunity.com/Article/410/19/36162.html . 7. Keeping in the loop African governments will do well to study the national laws of their would-be investors and, participate in the preparation of international agreements. The investment arena is currently agog with several proposals and counter proposals often termed ‘international’ but with only a couple of Western drafters involved. These establish rules and guidance notes which are unknown in the business environment of many African countries and perhaps across the academia and research centres as well. It is no wonder therefore that African governments are often unable to enforce their claims against foreign investors, stymied not only by their own inefficient legal systems but also by the investor’s national laws and, mystifying international agreements. Of further importance is the need to direct local partners to pay great attention to the detail of the investment agreements and the contracts they enter into subsequently. Clauses on intellectual property, the terms and conditions of the contract, the form, organisation, and the checks on management, deserve more than a perfunctory perusal. Due diligence is not an exercise that impacts on the investor alone. Beyond the achievements cited by an investor, the local partners should also be interested in knowing more about the investor’s track record and the rewards (beyond monetary profits) which an investor will bring to the business. Moreover, the business plan drawn up by the local partner should have undergone careful thought in order to contain the above factors and subsequent clauses which may be needed to protect both parties. Conclusion FDI in Africa has been gradual, tempered with the political instability across countries and checked unintentionally, by the poor socio-economic conditions which have always threatened business success across the Continent. Multinationals backed by deep financial resources and aided by governments eager to benefit from foreign investment have hitherto been the main beneficiaries of the investment climate across Africa. Mining, mineral sourcing and crude oil production have been the major sectors with a huge foreign presence, providing a small measure of employment to the indigenous population. The recent Fairtrade initiative and such other grass-roots interests have further provided a direct increase in individual and family incomes. Yet, Investment can give the Continent much more. Even as it posits itself to be an investment opportunity, Africa should not encourage this careless disregard for the respective investment needs of its countries and its rightful position as a Continent. Acknowledging that there are differences in needs and concerns across African countries, governments will thereby ensure that the right investment comes to the right environment. In addition, investors and their local partners must not forget to attend to the other imperatives of ensuring that investment creates better living standards across the African continent. It would be beneficial therefore for national governments to encourage and support local entrepreneurship by means of provision of credit facilities, efficient infrastructure and business regulation, and a focused educational system. As investment opportunities are identified, it will also be essential for national governments to ensure that internal regulations are clear on provisions on local content including for the use of local labour, service firms, local produce/resources; that there is administrative support for local entrepreneurs in developing business plans and carrying out due diligence, and that investors accept to undertake corporate social responsibility for their actions. Finally, the wealth created from investments must be accounted for: massive investments into a society amount to nothing when individual lives and that of the society in general, are not positively enhanced. Governments must themselves take on the task of efficient wealth redistribution.
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