Looking at Africa

What Changed
Jose Gijon: Africa is going through the most stable 10 years both politically and economically. African countries have been growing at 5% to 7% for the last 10 years. This is very high. Things are better in terms of economic management and micro-economic management.

Since the early 1990s, African countries went through serious structural reforms, improved economic management, gave incentives to develop the private sector, and changed the governance legislations for doing business. Even a country like Rwanda that had civil war in the 1990s, went through these positive changes.

The World Bank does a study on doing business in various countries – if you look at this study over the last few years; there was at least one African country in the Top 5 performers in the last few years. There have been a lot of changes that have made this happen. Africa was coming from the real bottom so improvements have happened from a lower base, a lower level of development.

Andrew Mold: If you look at US direct investment figures and see the profitability of US companies in Africa the returns were between 20%-25%. If you take 2007 alone, the profitability of US direct investment in Africa stood at 21.7% (proxied as direct investment income as a percentage of FDI stock – Bureau of Economic Analysis data). That is very healthy. Globally the average return has been 10-11%.

Growing Integration With the World
Jose Gijon: There has been growing integration of Africa in the global economy – this was spurred by the reforms that various African countries embarked upon and growing globalization. Africa developed trade links with other countries. It enjoyed a commodity boom in the last 6-7 years. So it was able to export – and not just to its traditional markets like the OECD, but also to countries like India, China and Brazil. Starting with that, there was a period of better economic growth and integration with the global economies. The middle classes in Africa started to grow

Wary of the Chinese
Andrew Mold: More generally the economic crisis and its impact on projects is something to look at – several big projects in Africa are on hold. Western investors are losing interest in some places. For instance, negotiations over the $9-billion China deal in Congo seem to have run into problems with the IMF. The Western donors don’t like this because the IMF is giving large amounts of debt relief to a country that is getting a lot of investment from China. And in the Chinese projects it becomes difficult to see where the aid component is and where the debt is.

Business Opportunities
Jose Gijon: There have been Major technology changes across Africa that helped develop business. Like the introduction of cellular telephony in the 1990s that could open a series of businesses. Four Africans out of 10 on an average have a cellphone all over the continent. And there are some countries where there are 8 phones per 10 people. A lot of business opportunities from cellular telephony started to blossom: Africa is today the No 1 region in the world for doing tele-banking. There is huge growth in tele-agriculture – where SMS messaging is used to help farmers.

Emerging African Giants
Jose Gijon: Little by little, African companies started becoming regional players – such as South Africa’s MTN and Egypt’s Orascom. Africa has a high risk compared to other regions. But with all the development in the last few years, African players started to understand that though certain countries were risky, the risk was lower than before. And even though the risk was high, it was worth taking in terms of profits. In banks, for instance, Ecobank has developed a pan-African presence.

Chinks that Remain
Jose Gijon: With stability and economic changes, there are a lot of things that still remain to be done: Africa needs to reshuffle its infrastructure – roads, water and sanitation.
Andrew Mold: A country like Zambia repatriates as much as profit they make on FDI. Some African countries have liberal investment regimes in the last few decades – there are few restrictions on repatriation. That mitigates the positive impact somewhat on the country in question