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Africa Engages with Open Eyes

Author: Stephanie Hanson
December 21, 2007

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The crises afflicting Darfur, Somalia, and Zimbabwe frequently appear in international headlines. But three other African countries—Equatorial Guinea, Angola, and Mauritania—scarcely make the news. Yet these countries are among the ten fastest growing economies in the world, and they stand at the forefront of a wave of economic growth that is sweeping the African continent. Over the past decade, World Bank data shows African nations posted an average growth rate of 5.4 percent, well outstripping recent economic growth in major developed countries, including the United States. This strong growth, in turn, has enabled African states much greater leeway to negotiate contracts for direct foreign investment, and many drive a harder bargain than they once did.

A flood of new investment interest in Africa, particularly from the United States, China, and Europe, has been directed mainly at the continent’s commodities. Some of the world’s largest deposits of natural resources reside in Africa, and much attention has been directed at China’s pursuit of both oil and minerals on the continent. Yet Yang Guang, the director of the Institute of West Asian and African Studies at the Chinese Academy of Social Sciences, notes in an interview that U.S. investments in Africa have greatly eclipsed China’s. In 2006, Yang says, Chinese investment in Africa was roughly $11.7 billion, but U.S. trade with the continent was nearly $71.3 billion. Since the inception of the African Growth and Opportunity Act of 2000, U.S.-Africa trade has grown 143 percent.

This new economic popularity has brought substantial changes to the way African countries do business with the world. Several have established one-stop investment shops to offer foreigners an easy entry point to investment opportunities. Others, such as Liberia, have focused on branding their countries to improve their images, a process that is gaining traction worldwide, as this Backgrounder explains. Increased investment demand also puts African countries in a position to dictate more favorable investment terms. “We want all of these investments,” said Mandisi Mpahlwa, South Africa’s minister of trade, at the 2007 U.S.-Africa Business Summit in Cape Town, South Africa, adding that Africans should “maximize the benefits for ourselves.” This sentiment was echoed by Sindiso Ngwenya of COMESA, the Common Market for Eastern and Southern Africa, who encouraged African leaders to think in terms of “self-interest in the way we engage our development partners.”

Yet despite the continent’s recent boom, it is important to keep Africa’s successes in context. Investments in the continent currently account for only 2.74 percent of foreign direct investment, globally, and problems continue to riddle African business. The World Bank report cited above says Africa won’t claim a larger share of global investment unless it invests in physical infrastructure to reduce the cost of exporting goods and improve the capacity of government institutions. A U.S. initiative to create regional trade hubs in sub-Saharan Africa has met with some success in improving trade competitiveness, but a report from Transparency International makes clear that corruption remains endemic in many countries. A base of skilled workers also remains elusive. According to a United Nations report (PDF), only 62 percent of African children complete primary school, the lowest rate in the world. In an interview with CFR.org, Botswana’s finance minister says improving human capital remains a primary objective in his effort to better Botswana’s global competitiveness.

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