Capital is a Coward; So Lower Your Defences
The East African (Nairobi)
12 November 2007
Posted to the web 12 November 2007
By Baroness Lynda Chalker
With several African countries now maintaining economic growth of five per cent plus, the issue for these governments is how to sustain and improve upon this positive momentum. For that to happen, most agree that the development of a thriving private sector remains the real key to future growth.
In nearly 30 years of working on matters relating to Africa, I have never questioned the potential and good opportunities that the continent has to offer. Yet alongside this has been the frustration that Africa was not getting the investment it deserved, even when the returns on that investment were usually higher than in many other parts of the world.
Even today, despite the upsurge in FDI into Africa over the past five years, the percentage in world terms remains low. African countries are in competition with the rest of the world, and with each other, for investment. It is often said that “capital is a coward,” seeking those parts of the world with the highest returns and the lowest risk.
If this is the case, then Africa must respond to this challenge if it wishes to benefit from such investment. In turn, that means that African countries must make it easier to do business with them.
There are many studies and policy recommendations on how to attract trade and investment to Africa. The challenge of our time remains to see real change in governance structures and the investment climate in the countries.
That is why we worked so hard to set up the Investment Climate Facility for Africa (ICF), now based in Dar es Salaam and led by Omari Issa, the former head of Celtel.
THE PARAMETERS needed for trade and investment are not dissimilar whether one is in Asia, the Middle East, Africa, Europe or North America. At the national level, governments must provide regulatory systems that facilitate businesses to operate in a transparent and accountable way.
These include licensing, registration of property, employing workers, protecting investors, paying taxes and credit provision. The World Bank and International Finance Corporation use these indices in ranking countries on the ease of doing business.
In their latest report, “Doing Business 2008,” all five countries of the East African Community made progress in one form or another. Kenya was among the top 10 countries in Africa and was singled out for launching a licensing reform programme that eliminated 110 business licences. Tanzania was found to be one of the two cheapest places in Africa to register a business, while in Uganda the enactment of its Labour Law this year modernised labour legislation.
The reduced cost of Rwanda’s port and terminal handling through the liberalisation of warehouse services has been commendable, including the increase in the number of Customs declaration points. In Burundi, the cost of registering property was reduced through tax cuts. These key actions by governments in the region demonstrate the desire on their part to improve the investment climate.
BILLS ON anti-counterfeiting have been drafted in Uganda and Kenya and are now due for parliamentary enactment. Counterfeiting remains a challenge to business both in Africa and globally. Punitive penalties are required to combat this illicit trade, which benefits few and disadvantages millions of ordinary citizens.
A number of countries across Africa have created presidential investor councils as instruments to help bring about sustained economic growth. These councils, generally made up of a mix of national and international businessmen, work closely with a country’s investment promotion agency to ensure that ideas can be implemented. The East African region is no exception.
The public and private sectors can work well together to a common end. Good public-private partnerships are critical in raising the level of understanding on both sides and for resolving issues of common concern for the benefit of nation building, as well as increased economic activity.
Good policies and strong political commitment on the part of a country’s leadership help to open up opportunities for investment. There are however other forces at play that must be addressed. Market size is one; for many international investors, the size of some African countries does not make investment attractive. Regional markets, however, change the dynamics.
The establishment of the East African Common Market will create a market of over 120 million people. A large market without the requisite purchasing power, however, is in itself insufficient to be attractive. The growth of a professional middle class is critical to fuel market demand. Policies that increase the basic incomes help create the demand for goods and services necessary to stimulate investment. A skilled workforce, and the removal of skills shortages, also has a positive effect on investment decisions.
THE REGIONAL approach to tackling the obstacles to investment is, I believe, the right way forward. The East African Business Council is working towards improving dialogue with governments in the region to address some of the challenges that businesses face. A regional framework to address some of these challenges is at an advanced stage of development.
The regional projects of interest include the East African Road Network Project, East African Railways Master Plan, East African Power Master Plan and the Lake Victoria Development Programme.
The Investment Climate Facility for Africa, a private-public partnership, was set up to fund projects endorsed by governments to improve Africa’s investment climate. They have reached their funding target of over $100 million for the first three years.
The first major ICF project is the Rwanda Investment Climate Project. This will assist the Rwanda to modernise its laws, establish a commercial court and create a new Rwanda Commercial Registration Services Agency. The outcomes will help in resolving commercial disputes and improve the registration of land and business in the country. The ICF is now consulting on other potential projects to improve the investment climate both country by country and in future through regional activity.
The East African region will shortly be playing host to the Commonwealth Business Forum, which will be taking place from November 20-22 in Kampala. This will be an opportunity to showcase the potential that the region has to offer. With East Africa – and Africa in general – now open for business, all opportunities for partnership and development should be encouraged.
Baroness Lynda Chalker is chair of Africa Matters Ltd, board member of the Global Leadership Foundation and Trustee of the Investment Climate Facility for Africa