Our partner and client, Baird’s CMC, just published a new study on the current state of US corporate investment in Africa, The Conversation Behind Closed Doors — Inside The Boardroom: How Corporate America Really Views Africa, sponsored by the U.S. Chamber of Commerce. I will share some very cool findings below, but if you would like to read the executive summary, you’re welcome to — in PDF and HTML:
Why has Africa not attracted more interest from the U.S. business community?
- Rule of law — The rule of law does not prevail to the degree required to make Africa an attractive investment destination. This applies to corporate, societal, and criminal law
- Attraction — While the enormous natural resources are an attraction, Africa does not offer a sufficiently large middle class of consumers or show consistent economic growth that could promise a future market. Most African countries are small and have poor markets, and there are barriers to regional markets–such as taxes and the freedom of movement of people and goods
- Risks versus rewards– Given the currently perceived risks in Africa, the rewards have to be very high to make it worthwhile to invest. Presently, U.S. corporations say that there are very few visible promises of future returns high enough to justify significant interest in investing
- Supportive business framework–Transportation and communications infrastructure, trained or trainable human resources, and equitable trade and employment practices are insufficient to support corporate investment
- A welcoming environment– African countries are not doing a sufficient job of providing education and health services to the potential workforce, which makes the potential hire-able local insufficient to support investment.
Here are some interesting news facts:
- Africa is the world’s second largest and second most populous continent after Asia, covering 20% of the world’s total land area, and home to 14% of the world’s human population, yet Africa remains the world’s poorest and most underdeveloped continent
- Africa has not received its “fair share” of global Foreign Direct Investment (FDI) flows
- Since the early 1980s, Foreign Direct Investment (FDI) flows to Africa averaging only 2.2% of the global total, while Asia received no less than 17.3% of the total
- Corporate America is interested and watching Africa closely; they see pockets of great potential
- US Technology companies are most attracted to investing in Africa
- Overall, the business case for investing in Africa is less compelling than for its competitors
- To make itself more attractive for US investment, Africa should:
- Invest in education , health and infrastructure
- Ensure the rule of law and a business-friendly climate for all investing companies
- Show it is serious about attracting foreign investment
- Market itself as aggressively as other regions of the world
- Demonstrate opportunity cost of not investing
- USA Inc. is more interested in Africa than before, because the African market appears increasingly attractive, but Africa has tough competition and high hurdles for US investment. Education is at the top of the US corporate wish list for Africa; “educate your people so that we can employ them”
- The African countries that hold most interest are South Africa and some countries in the North, like Egypt; there are also some pockets of interest in West Africa, most notably Ghana, Nigeria and to some extent Angola; while some in the South (Botswana and Mozambique) and East (Uganda and Kenya), are also being watched
And here are some direct quotes from some of the top management decision makers in 30 leading U.S. multinational corporations participated, a majority were executives of U.S. Fortune 100 corporations:
Business case:
“The most important thing for us is to grow our business profitably.
The question we ask is: ‘Do we believe there is a positive probability of securing a profit in the next couple of years?’
“We are a stock listed company so the first thing is return on investment. Can we make money? And can we get the money out? For instance you can make money in Zimbabwe but you cannot get the money out. So it doesn’t make sense for us.”
Corruption and uncertainty:
“Dangerous in terms of political and economic stability and dangerous also from a personal security point of view, whether it is related to criminality or diseases.”
“Law and ethics – a major constraint to do business in Africa? Yes, its the one market where the US Government will say – we will not help you in that market”
“The U.S. Foreign Corrupt Practices Act is a strong law that bars US companies from paying bribes. This is a barrier that some other vendors don’t face.”
“Biggest concern is trade in counterfeit goods and its impact especially in West Africa.”
Opportunity cost:
“When there is debate in the company over where to invest, there are 10 arguments pro BRIC’s and 10 arguments against Africa”
“There are other opportunities around the world that are more attractive. Africa loses; simple as that”
“We see China coming after this market so we’re becoming more aggressive.
“What China is doing is flowing $60 billion into Africa which can create prosperity if it’s done properly. But if they export workers from China to build the railways and the locals have no benefit from it, it smells a little bit like neo colonialism”
Africa stasis:
“Africa is a dichotomy. It is difficult to generalize about such a vast and complicated continent. Everyone who knows Africa can see the hope and opportunity, even if their experiences are negative. But everyone who knows Africa also knows that the challenges are many and complex.”
“Africa requires too much hard work and I am not hungry enough as yet”
