“Get paid, not aid” is the title of an Economist article on the growing initiatives for investing in Africa. Traditionally, both Africans and foreigners have shied away from investing in Africa based on the continent’s reputation for rampant corruption, and they assuaged their consciences by sending aid.
I should add here that corruption in African countries is a western interpretation of a practice that is culturally-based, and therefore deeply ingrained; that is, the higher the position, the bigger “dash” commanded (“Dash” is the West African expression of what we Westeners would call a bribe). This is a practice is considered quite normal, expected, and even a token of respect. Is the practice abused? Certainly, but it’s much more difficult to eradicate when it’s a culturally-based practice rather than a pure “means-to-an-end” as it is in Western cultures.
However, the current initiative for investment is coming not just from foreign companies anxious to exploit Africa’s rich resources, but also from African entrepreneurs and some African governments, and that is a new and very positive step into the future. The field is fertile. The continent currently accounts for about 20% of the world’s population, but just 3% of global GDP, 2% of worldwide trade, and 1% of private capital.
The new trend of investment by Africans themselves is exemplified by Aliko Dangote, the continent’s richest man, who has just invested $20 billion in a new refinery in Nigeria. However, estimates from the Bookings Institute in the U.S. suggest that sub-Saharan Africa will need $245 billion a year in additional financing going forward, so the path is wide open, but it will not be easy to raise such an enormous sum on an annual basis.
There is also the historical record to consider, and not just in terms of corruption. Kenya is a good example. Thanks to the vision of Jomo Kenyatta, Kenya’s President after independence, the country grew at a very fast rate – Kenyatta played the West against Russia very successfully. The economy grew, the healthcare system improved exponentially, and the infant mortality rate dropped dramatically. That all sounds very positive, but women continued to have 10-12 children – based on the historical reality that only a few would survive into adulthood. All of a sudden, ten lived to adulthood, and that produced a population explosion because family planning was considered anti-cultural and was never introduced into the development plan. The economy almost went back to where it had been before. I only mention this because contingency planning will be essential in these new investment initiatives if growth is to be sustainable long term.
Current plans call for governments to cooperate – there is already a special labor visa system in place between 31 countries so that the labor force can be much more mobile when different needs arise. Locally funded projects, often in joint ventures with foreign entities, include extensive expansion of the railway system throughout the continent, better communications in general, and a venture capital market that is based in Africa and not necessarily in London, New York or Tokyo.
Anecdotally, African fund managers also say there is a sense among some of their rich clients outside the continent that, when America is more volatile, Europe is aging and China is slowing, Africa is worth a bit more of an allocation. Mr. Dangote says, “We’re showing people that, yes, OK, it can happen also here, because if we don’t, there’s nobody that can come and do it for us.”
Africa obviously has enormous potential, both in terms of resources, material as well as labor, and a rapidly growing internal consumer market. If they can get the balance right to manage sustainable growth, their future looks rosy indeed.
