Source:knowledge.wharton.
Africa is a continent with the highest youthful population and vast mineral resources, making it both labour and resource abundant. Moreover, over the years, the continent has been making significant strides in terms of political and social development, making Africa’s investment market less murky. The continent has transmuted into a favourite destination for investors. However, there are still critical success factors that the continent would need to address in order to attract more investors. These factors are critical, not only in attracting investors, but in realising the benefits that come with the investments. It is time for Africa to move from aid to investment. Aid impoverishes the continent by creating a dependence syndrome. Below is a description of key issues that the African governments need to address to both attract and retain investors.
Infrastructure Development.
The continent needs serious infrastructure development to support the success of the continent. New estimates by the African Development Bank suggests that the continent’s infrastructure needs amount to US$130–170 billion a year, with a financing gap in the range of US$68–$108 billion. The key infrastructure development needed to facilitate the growth would be mainly in the following areas:
1. Transport –We need to assess if we have adequate transport infrastructure to facilitate the increased movement of people and goods. For instance, does the Zimbabwe-South Africa border route have enough capacity to sustain the inflow and outflow of goods at a greater speed? Improved modern transport systems can support the easy movement of raw materials to producers and products to customers. Having enough infrastructure development will make Africa a favourite destination for importers and investors as they know that Africa has enough infrastructure to support production, transportation, and distribution.
2. Energy -The most singular significant resource in manufacturing and industrialisation is the availability of electricity. Per the 2018 Africa Economic report, more than 640 million Africans have no access to energy, giving an electricity access rate for African countries of just over 40 percent— the world’s lowest. For those who have access to electricity, it is never in constant supply, leading to some resorting to the use of generators to support production. The use of generators is expensive and would end up increasing the cost of production. Production time is also lost due to power outages and time is lost in resetting the machines. Furthermore, using sources of power like generators will also limit capacity of the manufacturing plants, in so doing, halting production levels. Such a scenario deters investors and further forces the ones in the industry to curtail their operations. Investors are capitalists and rational people; they avoid environments that present high cost of doing business and move to better places.
In an interview, the President of the African Development Bank Group, Dr. Akinwunmi A. Adesina suggested that the best way to finance the infrastructure deficit is by using domestic funding, particularly the pension funds, as these funds are easily available and if managed well, the investment in infrastructure could present a better return. The external debt normally presents currency and maturity mismatch.
Policy Consistency and Transparency.
One of the issues that shook Zimbabwe’s investment landscape was the indigenisation policy which stated that all foreign owned companies with a minimum asset value of $ 500 000 should give up 51% of their ownership to local Zimbabweans. This applied to both existing and incoming investors. To most people this was interpreted as giving up the companies’ shareholding for free, resulting in incoming investors sidestepping Zimbabwe as an investment destination. However, the actual policy meant that foreign companies would dispose their shares to locals at current market prices and through a normal commercial process. For instance, ZIMPLATS AND MIMOSA disposed their 51% shares at US$971 million and US$551 million respectively. The deal valuation processes were done by independent parties. The indigenisation policy is one of the clear examples of effects of lack of clarity and transparency when implementing a policy. The problem investors had over the indigenisation was not that it existed, but it lacked clarity and transparency. When implementing a policy, transparency is key. It is earned through engaging the foreign investors, local investors, and incoming investors. The process of engaging all parties builds trust between both parties i.e., the government and the private sector, which results in the acceptance of the policy, hence transparency creates trust, leading to acceptance of the polices by all the parties involved.
Of importance is policy inconsistency. Most of the African governments have been held responsible for policy inconsistency such as continuously changing the trading rules, export rules, tax rules. Such inconsistency creates a lot of unpredictability in the investment market environment, leading to the creation of difficulties for both current and existing investors to appropriately strategize. No one would want to trade in an environment where you would always throw away your future plans in order to billet the changes in policy, which in most cases is done without proper consultation, resulting in the existing investors slowing their investment or exiting the market, and incoming investors withholding their investments.
Investors avoid economies that use regulations to manipulate the private sector. Policies must not burden business operations. Rather, they must promote the swift and efficient running of the businesses. In essence, policy making must be transparent and consistent. Before we seek to attract new investors, let us make sure the policies are promoting the growth of the current investors and the private sectors. New investors measure ease of doing business in a nation by evaluating how the current companies in the country are being treated. Lest we forget, “Charity begins at home”.
Leadership and Corruption.
The effectiveness of a policy or agreement can never go above the integrity and willingness of those who designed the policy. Hence, the co-operation and commitment of the African leaders is of paramount importance in making Africa an investment destination and economic powerhouse. The effects of corruption are detrimental. Firstly, corruption results in leaders not seeking improvement of policies within an economy, because such outdated policies directly benefit them at the expense of the nation’s economic growth. In some economies, you will identify presence of bottlenecks that are damaging to the economy, but they are not being addressed by the authorities, mainly because some leaders are directly benefiting. Such scenarios affect the marketability of an economy as an investment destination.
Secondly, most investors have always voiced that operating in an environment where corruption is rampant results in higher cost of doing business; not only financial costs but also operational costs. This is mainly because at some point, investors are required to pay extra fees to be awarded a deal. It does not only end there. Whilst operating in the country, more demands are sent through. You can never quench the thirst of corrupt men. China made deliberate efforts to deal with the corruption which resulted in it being an economic powerhouse. In addressing corruption, leadership is the key. There has always been a mismatch between government chatting and the actual action it takes towards fighting corruption. If leaders lack political willingness and commitment, the talk against corruption will, at no time, materialise the anticipated outcomes.
Conclusion
As with any arena, the marketplace of investments is jam-packed, hence there is a need to both market and improve the current trading conditions for Africa to be an attractive investment destination. The continent is still a risky area, but largely, the benefits of investing in the continent outweigh all the risks involved. Furthermore, it should be noted that risks and profits are joined at the hip.
