Tag Archives: investment

The Future of the U.S.-Africa Economic Relationship

africa-growth-drivers

Last week Washington hosted nearly 50 African heads of state at the first-ever U.S.-Africa Leaders Summit. Countless meetings and conversations that took place not just among government officials but businesses, international organizations, and non-profits (including CIPE and Freedom House) brought Africa into the spotlight. Yet the most important aspect of the Summit is still ahead: what did we learn and how can this knowledge guide the way forward?

One of the most informative outcomes of the Summit to me was the launch of a report Africa and the United States: A defining relationship of the 21st century at the U.S. Chamber of Commerce’s Presidential Plenary. The report was jointly produces by the U.S. Chamber and Investec Asset Management (IAM), a global investment management firm founded in 1991 in South Africa. Hendrik du Toit, Investec’s CEO, unveiled the report and discussed its findings with a panel of corporate leaders.

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The Role of Business in Advancing Political and Economic Freedom in Africa

africa-leaders-event

This week nearly 50 heads of state will attend President Obama’s U.S.-Africa Leaders Summit in Washington, DC to discuss trade and investment, security, democratic development, and how to achieve a better quality of life for all Africans. The summit will bring together government representatives, business people from the U.S. and Africa, and leaders of civil society groups.

In many ways this summit will be the beginning of a hopefully much larger conversation on how the United States and 54 African countries can increase economic ties, strengthen democratic development, and create new economic opportunities and freedoms for Africans.

To help start this conversation, CIPE and Freedom House brought together several U.S. and African thought leaders to offer their insights on how to advance political and economic freedom in Africa at an event August 1. The purpose of the event was to reinforce the case that good governance and democratic values are closely linked to sustained economic growth, and to offer some actionable ideas on how to strengthen the U.S.-Africa partnership.

The panelists included: Kim Davis, Managing Director and Co-Chairman at Charlesbank, Hon. Donald Gips, Co-Chairman of the U.S. Chamber of Commerce Africa Business Initiative, Betty Maina, Chief Executive of the Kenya Association of Manufacturers (KAM), and Aniket Shah, Global Investment Strategist from Investec.

As Hon. Gips mentioned, many American firms are not even at the “starting line” with regards to expanding their business into Africa. There is no doubt that there are plenty of opportunities and that different countries on the continent are experiencing economic growth and a growing middle class of consumers that offer both African and international companies new opportunities to expand their markets. But for many reasons, few U.S. firms outside of the extractive industries are investing in Africa.

At the same time, Freedom House’s Freedom in the World Index shows that many African countries are not advancing political and economic freedoms, and in some parts of Africa are reversing previous gains. As Betty Maina from KAM pointed out, after the fall of the Berlin Wall there was a great promise “for a better life and democratic opportunity,” but Africans have not built the underlying institutions necessary for democracy to succeed – instead focusing almost solely on conducting elections.

“There is currently a despair about democracy and the fundamental ingredient to change this is the building of proper institutions,” Maina said.  As former Ambassador to South Africa, Hon. Gips, put it: “the hard part is what comes after the elections.”

So what can the business community do about the current state of affairs? Kim Davis emphasized that business has a deep interest in the rule of law. African countries need judiciary systems that work and business climates where contracts can be enforced. Keeping the system accountable requires freedom of the press, and African businesses need to push for greater press freedoms.

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Moving Beyond the Bi-Polar View of Doing Business in Africa

New buildings in Gabarone, the capital of Botswana -- one of the most developed and fastest-growing economies in sub-Saharan Africa.

Gabarone is the capital of Botswana — one of the most developed and fastest-growing economies in sub-Saharan Africa.

By Naledi Modisaatsone

Economic improvements and a wealth of opportunities for business in Africa have led to an increased focus on the continent. Over the past three years Ernst & Young’s Africa attractiveness reports have highlighted the continent’s steady rise. Their research provides some quantitative substance to the growing perception that African markets offer an exciting growth and investment opportunity.

Africa’s growth prospects differ not only country by country but also sector by sector. For example, agriculture is Africa’s largest economic sector, representing 15 percent of the continent’s total GDP, or more than $100 billion annually. It is highly concentrated, with Egypt and Nigeria alone accounting for one-third of total agricultural output and the top ten countries generating 75 percent.

Africa’s banking sector has also grown rapidly in the last decade. Sub-Saharan Africa has become a substantial player in emerging-market banking, with total 2008 assets of $669 billion, while North Africa’s asset base has grown substantially, to $497 billion. Africa’s banking assets thus compare favorably with those in other emerging markets, such as Russia (with $995 billion).

However, the Ernst & Young reports also highlight a lingering perception gap between companies already doing business on the continent and those with no business presence there. The respondents with an established business presence in Africa are more positive about the continent’s prospects and rank Africa as the most attractive regional investment destination in the world today. They view it as an exciting, dynamic, high-growth market. In stark contrast, respondents that have not yet invested are negative and rank Africa as the least attractive regional investment destination in the world.

The African business community should spend some time on this issue at the US-Africa Business Forum. It is their responsibility to debunk the myths that some external investors have about operating a successful business in Africa. These business leaders are successfully embracing Africa’s uncertainty, complexity and volatility, understanding that these are common challenges across most emerging markets.

They are actively balancing the three tensions that all companies face in doing business in emerging markets: long-term versus short-term focus, profit-taking versus sustainable growth, and managing the whole versus optimizing the parts. Most importantly, their companies are establishing strong competitive positions in key markets and are poised to benefit from the continued growth anticipated over the next decade.

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U.S. Companies Should Not Overlook Opportunities in Sub-Saharan Africa

A growing textile industry is among the drivers of Ghana's rapid economic growth in recent years. (Photo: Wall Street Journal.)

A growing textile industry is among the drivers of Ghana’s rapid economic growth in recent years. (Photo: Wall Street Journal.)

By Chris Braddock

Next week the U.S.-Africa Leaders Summit will bring approximately 50 heads of state to Washington, DC, for the purpose of discussing trade and investment in Africa and highlighting America’s commitment to the continent. During a recent trip in the region, I spent quite a bit of time thinking about this topic.

Over the past four months I was busy traveling in sub-Saharan Africa (SSA), meeting with businesses and academics and researching the business opportunities in five different countries. As part of this trip I had the opportunity to meet with several CIPE partners and consultants who, as representatives of the private sector, were able to speak about the enabling environment and some of the challenges and opportunities of businesses working in SSA.

Most countries in SSA have historically been seen as too unstable, too small a market, or too risky for U.S. companies to explore opportunities, so there are few American companies operating in the region. The perception of SSA for many is based on the plethora of negative stories presented by the media, but this is merely a small and decreasingly significant part of the SSA story. Growth rates are high, people are optimistic with larger disposable incomes, and foreign direct investment is flowing in larger quantities, particularly from Asia. U.S. firms are starting to get left behind.

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Growing Pains or Insurmountable Odds?

south-sudan-un-refugees

South Sudan just successfully hosted one of the largest events in the country’s short two-year history. On December 4 and 5 an impressively diverse crowd of potential investors and business owners from more than 60 countries came together in the capital Juba for the South Sudan Investment Conference, titled “Investment for Economic Diversification and Prosperity.” With more than 800 people registered to attend the two-day event, and at least 500 actually in attendance, observers and participants alike were relatively pleased that the event was carried out with only a few hiccups.

Logistically, it was just shy of a miracle. With only one major paved road in the entire country, a nascent hospitality and service industry, and a lack of local transportation options, it is noteworthy that an event of this magnitude even took place.

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Lights Out for Business

A man cooks by candlelight at a small roadside shop. (Photo: AP)

For the last several days, half of India’s population — HALF — has been without electrical power. That’s 600 million people, twice the population of the United States, trying to keep on about their lives without lights, public transportation, or utilities. That’s tens of millions of businesses losing income, product, and potentially livelihoods.

Last month a powerful, fast-moving storm called a derecho disrupted power for hundreds of thousands of people in the Washington, DC area. We all complained mightily, but most suffered little more harm than some spoiled food and a few days without air conditioning. In many places around the world, including India, a few days without power is not at all unusual. In fact, daily brownouts or blackouts are sometimes the norm. Many established firms and wealthy individuals adapt by installing batteries or generators — a drain on the economy. But how can small and medium-sized businesses and entrepreneurs survive and thrive in such uncertainty?

When power is unreliable or inaccessible, businesses and businesspeople suffer. An appropriate, adaptable infrastructure is crucial for economic development and growth, and governments must make it a priority. Investing in infrastructure doesn’t mean simply that the lights stay on. It means that power is available for offices, factories, schools, and hospitals. It means that roads are clear and available to transport goods and services. It means that water is clean and accessible for public consumption, as well as for manufacturing and agriculture.

Infrastructure is not cheap, and many nations believe they have more pressing needs. As India swelters in the dark, however, it is worth remembering that investing in infrastructure is worth it.

The great race for independence: the private sector in Kurdistan

Go cart racing in Erbil. Photo: http://bolen88.files.wordpress.com/

On a recent trip to the Iraqi Kurdish region, my friends invited me for a night out in Erbil.

Having been to Erbil many times, I thought I knew the drill. If lucky, I would go out to a nice restaurant. I would sit at a white table parked on lush, green grass. There, I would eat terrific kabobs until my heart was content. Sometimes, I would eat so much maskouf that my stomach would beg for mercy. I would drink coffee, listen to music, and make conversation.

While these relaxing nights cemented some of my closest friendships, I had never come close to using the words exhilarating or thrilling to describe a night out in the Kurdish region. On my last trip, that changed.

We headed out to Erbil Speed Center, a sprawling course of go kart race tracks adjacent to an upscale housing subdivision called Dream City. There were three types of go karts available and kilometers worth of tracks as wide as highways. Upstairs, there was a full restaurant and bar.

I popped on a helmet, thankful for once that I no longer have to worry about helmet hair, and strapped myself into a kart. Driving along so many others, so unsteady in these imitations of automobiles, was terrifying. I zipped around the track, laughing much of the way.

Having lived in Washington, DC for so long, I had forgotten that driving can be fun. More importantly, driving fast can be very fun. Driving on a world-class course that symbolizes the Kurdish region’s fast track to a better future, however, was nothing short of exhilarating.

After taking off my helmet and catching my breath, I pondered the future of a region that is changing so quickly. Indeed, there is a race underway in the Iraqi Kurdish region.

Above ground, the Kurdish private sector is flourishing. Often referred to as “the other Iraq” because it has been relatively unencumbered by the instability that has plagued the rest of the country, the Kurdish region has been a magnet for post-war investment. Joining the Erbil Speed Center are new stores and restaurants opening every day.

Already a vibrant national tourist destination, replete with brand new hotels and tourist operations, the Kurdish region appears poised to become an international attraction as well. This year, National Geographic named the region one of the twenty most enticing tourist destinations of the year. When a Washington Post reporter visited to confirm the region’s charm, she noted that in Erbil “businesses are flooding here to gain a foothold, and tourists from the rest of the country swarm here to shop in the rapidly proliferating malls and to eat and drink in safety at the restaurants, bars and outdoor cafes.”

The development of the region’s private sector is a good thing for its people. Throughout the Middle East, Arab populations have been rising up against their governments because those governments have largely denied them the ability to achieve dignity through high value employment. If granted the proper environment in which to develop, the Kurdish region’s private sector appears poised to offer that dignity.

Its ability to do so, however, may be under threat. In 2007, when the semi-autonomous Iraqi Kurdish Regional Government enacted an oil law allowing it to sign agreements with foreign companies and profit from them, it set off a race that could determine the fate of the Kurdish region. The Kurdish Regional Government’s budget will grow rapidly. The question remains whether the private sector can grow fast enough to keep pace.

Thus far, disagreements with Baghdad and growing pains in its technical capacity have limited the Kurdish region’s ability to generate significant oil revenue. That it will one day do so, however, seems clear. When former BP CEO Tony Hayward’s investment firm Vallares Plc announced that it was making a $2.1 billion investment in the Kurdish region of Iraq, he called the region “one of the last great oil and gas frontiers.”

Indeed, the riches under the ground that have investors salivating will soon pump the government full of cash to spend. This year, the budget for the Kurdish Regional Government sits just below $10 billion. Next year, some have predicted that it could nearly double. Whether that cash will benefit public officials or the Kurdish people holistically depends on whether the private sector can grow strong enough to compete.

Already, the government has used some of that revenue to benefit businesses in the short term. For example, the government has offered businesses no-interest loans, subsidized electricity and water, and even provided free land for those that fit the government’s strategy of development. Many businesses, noting the deluge of subsidized Turkish and Syrian goods entering the region, argue that this assistance is crucial if Kurdish enterprises are to survive what they perceive as a dirty fight. Some businesses have even argued that the level of their own subsidization is insufficient.

The danger, of course, is that these training wheels, designed to get Kurdish businesses moving, could become crutches as businesses become dependent on the handouts of an ever richer government. At this point, currying government favor would likely become more important to success than elevating efficiency and competitiveness.

The private sector, which in well-functioning democracies serves to provide job opportunities independent from public office, could become a supplicant. Waste, inefficiency, and misallocation of resources could stunt the economy. Corruption and abuses of power could destroy what could have become a promising democracy.

Of course, this dark scenario is not inevitable. It is certainly possible that businesspeople and public officials will determine at some point that the threat of Turkish and Syrian goods no longer merits the danger of resource misallocation posed by subsidies. Iraqis in the Kurdish region might also determine that their lives are better if they are served by a private sector that exists to meet their demands, such as the demand for a well-maintained go kart course, not to lobby for government subsidies.

Creating an environment that enhances the long-term competitiveness of Iraqi Kurdish regional firms will require the cooperation of the private and public sectors. A competitive, free market economy requires institutions that protect property rights, ensure secure contracts, facilitate freedom of entry and exit into the market, and assure freedom of information. The rule of law is essential in ensuring that laws and regulations are applied consistently and fairly to all citizens.

In addition, we’ll also have to see a change in the mentality of companies, where they demand a more competitive institutional and business climate that gives them a fair chance to grow and develop rather than hand-outs and protections from the government.

Currently, CIPE is working with a range of private sector and civil society organizations to identify the specific needs and opportunities facing Iraqi Kurdish regional businesses. These partners are in the process of drafting a provincial business agenda to articulate the needs of the full range of the private sector to government. By working together with the private sector, policymakers can help create an environment that fosters competitiveness and ensures that the growing Kurdish Regional Government is accompanied by a strong, independent, and increasingly competitive private sector capable of delivering the prosperity that its citizens need.

The Kurdish region remains appealing to investors for reasons that have nothing to do with oil. That means that Kurdish regional businesses still have ample chance to grow faster and stronger than their government’s budget. If the Kurdish region is to have a healthy economy and democracy, they must.