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Are investors missing out on sub-Sahara Africa?

By Alonzo Fulgham

Africa’s improvements have created thriving markets. US firms should enter this last great investment frontier.

Normally, by the time an investment tip makes its way into a newspaper, conventional wisdom says the money is already off the table. Not so in the case of sub-Saharan Africa. American investors and companies are overlooking an investment opportunity in plain sight. And the smart money will climb aboard before the economic tide rises. The rest will miss a fast-moving boat.

Market-friendly reforms in Africa are happening at a faster pace in this decade than at any time since most African nations achieved independence in the latter half of the 20th century. They reflect a serious and sustained commitment by African governments to meet the needs of local entrepreneurs as well as foreign investors “because they recognise that the fastest path to prosperity for their people is through investment and self-sustaining economic growth.

Western media typically cast sub-Saharan Africa in terms of conflict, corruption, AIDS, and poverty “and the present food and energy picture understandably dominates the news. But read behind the headlines and you can see some of the most attractive investment environments in the world. Foreign direct investment from all countries into sub-Saharan Africa grew by 60% in 2007, to nearly US$ 27 billion. Total private capital flows have grown eightfold since 2002.

Investment-led growth in Africa will enable that continent to contribute to the recovery from the global recession affecting individual Americans as well as improving the lives of Africans.

The opportunity isn’t going unnoticed by investors in other parts of the world. China is poised to overtake the US in pace of investment in Africa. Kuwaiti interests purchased Africa’s Celtel for US$ 3.4 billion. Moscow investment bank Renaissance Capital announced plans to double its investments in Africa to at least US$ 1 billion. French firm SoSuMar is building a sugar-processing factory in Mali, where they expect an internal rate of return of nearly 58%.

The territory in most business sectors is wide-open. Prime areas include agriculture, healthcare, infrastructure, information technology, tourism, telecommunications, and textiles.

Are US investors aware of striking changes in Africa? Sweeping reforms have been launched in 40 African nations since the 1990s: pro-business policies, strong judicial systems, better standards, respect for intellectual property rights. Debt relief has markedly improved Africa’s credit worthiness. Monetary policies have pushed inflation down from the 19 percent average of the 1980s, to 7 to 8 percent today. Fiscal policies have turned country budget deficits into an average budget surplus of 2 percent of Africa’s gross domestic product.

Despite the headlines in Sudan, Zimbabwe, and Congo, the great majority of African countries enjoy thriving democracies and stability, with governments that have earned public confidence through audited elections. Last year more than 54 million Africans voted in 19 peaceful presidential and parliamentary contests.

The result? Real economic growth in 2 out of 5 sub-Saharan countries was triple that of the US economy last year, on a pace that rivals that of Southeast Asia in 1980. African economies from Senegal to Benin to the Democratic Republic of Congo are more diversified. Growth in the region is expected to hit 6.5 percent this year.

To be sure, there are still serious risks, challenges, and constraints for smart money to navigate: shortages of electricity and skilled talent; countries where reforms are fragile and post-conflict governments less secure. Successful investors and entrepreneurs enter these markets aware that differences in culture and shortages of investor-ready information and institutional capacity put a premium on patience and collaboration. There is no substitute for due diligence.

But help is available. By working with USAID, American firms can help shape programs that serve both the aspirations of Africa’s citizens and the interests of investors. Most African governments have streamlined business registrations and launched one-stop shops to help potential investors.

The Overseas Private Investment Corporation makes loans of up to US$ 250 million for projects in emerging markets. The Millennium Challenge Corporation provides powerful incentives to countries promoting good governance. And for US exporters, the Trade Information Center offers targeted country and market research as well as counseling and export assistance centers.

This growth story is in its first chapter, much as Asia’s was three decades ago, with all of the attendant risks and potential rewards. Investors worldwide are aggressively entering and operating in sub-Saharan Africa as the last great investment frontier. American firms should take a much closer look.


Alonzo Fulgham is serving as acting administrator for the US Agency for International Development (USAID). This is a slightly edited version of the article that was published in Washington on September 29.

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