ECOSOC ROUND TABLE DISCUSSES INVESTMENT CLIMATE IN AFRICAN COUNTRIES

ECOSOC
16 July 2001






The Economic and Social Council continued its high-level segment this afternoon with a round table debate on the investment climate in African countries, with participants contending that such difficulties as corruption and African capital flight had to be rectified, educational programmes strengthened and local entrepreneurs empowered as a way of encouraging foreign private capital to come to the continent.

Panellists for the event were Karl Sauvant, Director of the Division on Investment Technology and Enterprise Development of the United Nations Conference on Trade and Development (UNCTAD), who also served as moderator; A. Bio Tchane, Minister of Finance of Benin; Abdoulie Janneh, Assistant Administrator and Regional Director for Africa of the United Nations Development Programme (UNDP); Kenneth Kwaku, Manager of the Promote Africa Initiative and Programme Manager of the Multilateral Investment Guarantee Agency (MIGA); and James Onobiono, President of the Compagnie Financiere Internationale of Cameroon.

The Chairman of the meeting, Carlos Magarinos, Director-General of the United Nations Industrial Development Organization (UNIDO), opened the gathering by saying it was understood that an attractive investment climate was vital for economic development in Africa, yet no other region of the world remained so dependent on foreign capital while being so excluded from globalized trade and investment.

Mr. Sauvant said that only last week UNCTAD had released data that showed that foreign investment in Africa had declined in 2000 from the previous year, and flows of official development assistance (ODA) had been declining as well, although there was also some good news -- indications of increasing private-sector interest, and the fact that virtually all countries had improved their climates and regulatory frameworks to better attract business.

Mr. Tchane, the Finance Minister of Benin, told the gathering that labour legislation, business regulations and legislation, both domestic and international, various administrative reforms -- relating to accountancy, for example -- and regional approaches were among the important issues that had to be addressed to improve the African investment climate.

Mr. Janneh of UNDP said one thing that could be done was to improve the image of Africa; risks tended to be exaggerated, as Africa was seen as a place of wars and coups, and perhaps the harmonization of sub-regional business frameworks and practices could be extended to the portrayal of accurate images of the successful and stable regions of Africa.

Mr. Kwaku of the Promote Africa Initiative remarked that building a good climate for business in Africa began with African entrepreneurs -- it was necessary to increase these entrepreneurs' competence and to expand their capabilities, and it was also important to establish rule-based societies, including through legal reforms that supported business.

And Mr. Onobiono of Compagnie Financiere Internationale of Cameroon said domestic investment was a telling factor -- after independence there had been a great deal of such investment, but it had gone into the wrong sectors; now Africans needed to bring back their capital, as so much of it was invested outside -- politicians and Government officials had to bring back capital from overseas and invest it locally in sectors of the economy, and then foreign investment would follow.

Those contributing to the discussion from the floor contended among other things that a framework for sustainability of the private sector should be pursued by African Governments; that even foreign direct investment should meet certain criteria and standards -- that investment that crowded out domestic investment or unfairly exploited the continent's natural resources was of little long-term use to Africa; that investment should go towards business undertakings that treated African employees well and paid them decently; and that many potential investors simply did not know what the climate in Africa was like and did not know that many successful investments had been made there.

Statements of panellists

CARLOS MAGARINOS, Director-General of the United Nations Industrial Development Organization (UNIDO), Chairman of the round table, said it was understood that an attractive investment climate was vital for economic development in Africa; no other region of the world remained so dependent on foreign capital or was so excluded from globalized trade and investment; currently Africa managed to attract only 1.2 per cent of international foreign investment. Obviously that had to change.

KARL SAUVANT, Director of the Division on Investment Technology and Enterprise Development of the United Nations Conference on Trade and Development (UNCTAD), moderator of the meeting, said that only last week UNCTAD had released data that showed that foreign investment in Africa had declined in 2000 from the previous year; official development assistance (ODA) flows had been declining as well, and ODA was vital, as it funded such things as public sector programmes and infrastructure development -- private-sector investment could not substitute for ODA. On the other hand, there was some good news; there were indications of increasing private-sector interest, and virtually all countries had improved their climates and regulatory frameworks for foreign direct investment. Still more needed to be done. Among other things it was vital to build economic capacity that would appeal to foreign direct investment.

A. BIO TCHANE, Minister of Finance of Benin, said it was true that companies and economic growth and investment were all in a difficult situation; some results were being obtained, however, and advantages were being given to the private sector, but as a Minister of Finance he knew only too well that more had to be done to establish a feasible economic policy for attracting investment. Continuing high public deficits and high balance-of-payments deficits, as had prevailed recently, were not going to do the trick; the overall economic situation had to be more healthy. There had to be cooperation with the private sector; strategies had to be of the sort where all worked together under an effective and transparent regulatory framework, and where good governance prevailed. There was corruption, including passive corruption among public officials and among private business officials, and corruption had to be eliminated.

Labour legislation, business regulations and legislation, both domestic and international, various administrative reforms -- relating to accountancy, for example -- and regional approaches were among the important issues that had to be addressed. And the private sector had to be included in the process, Mr. Tchane said. It was necessary to conduct and continue structural reforms, including liberalization of economic sectors and elimination of barriers to private-sector business, removal of tariff and non-tariff barriers, and the fostering of nascent industries. There was also infrastructure work that had to be done, and capacity-building. In addition it was important to have an ongoing dialogue between the private and public sectors on the topic of technology transfer.

ABDOULIE JANNEH, Assistant Administrator and Regional Director for Africa of the United Nations Development Programme (UNDP), said that if he were from the private sector he would see no reason why he should not invest in Africa. Those who were already in Africa said it made sense to continue there; returns from Africa were high and African countries were making great efforts to create attractive environments for investments. But obviously there were problems, too. Capital flows continued to be much less than desired; official development assistance (ODA) continued to be insufficient; African countries had no direct access to international capital markets; and they suffered tremendously from debt, and debt payments were clouding Government investments in infrastructure and social spheres that would make countries more attractive to private capital.

What to do? One thing was to improve the image of Africa; risks tended to be exaggerated, as Africa was seen as a place of wars and coups; Africa had to deal with this matter. Perhaps harmonization of sub-regional business frameworks and practices could be extended to the portrayal of the correct image for the successful and stable regions of Africa. Another thing to do was to try to sustainably attract industry. Finally, HIV/AIDS had to be dealt with -- it was wiping out development gains of the past 20 years; it was having a tremendous cost. It had to be addressed and the private sector should be involved in doing so.

KENNETH KWAKU, Manager of the Promote Africa Initiative and Programme Manager of the Multilateral Investment Guarantee Agency (MIGA), said each of the various parties had his own favourite ingredients for what established an attractive business climate; foreign investors were interested in social and economic structure and a good regulatory framework; very faint in many cases were the voices of the local private sector. It was time to balance the equation. Africa was a vast region with many possibilities, and despite various problems, including HIV/AIDS, much progress was being made in governance and democracy; yet it was a matter of concern that Africa was a great source of capital flight. African holdings outside Africa exceeded official
development assistance (ODA) that came to the continent from outside. Foreign investment was one thing, but another was that Africa should be conducive to African investment -- things should be arranged so that Africans themselves were willing to bring their money back.

In his opinion, building a good climate for business in Africa began with African entrepreneurs, Mr. Kwaku said; it was necessary to increase these entrepreneurs' competence and to expand their capabilities. It also was important to establish rule-based societies, including legal reforms that supported businesses, generally recognized accounting standards, and transparent government operations. Africa had many underfunded investment promotion centres, and African diplomats lacked expertise in attracting investment. In addition, Africans needed sharply conceived and targeted image-building campaigns.

JAMES ONOBIONO, President of the Compagnie Financiere Internationale of Cameroon, said an investor such as an African like himself, who had investments in various countries, could find the conditions he needed to invest in Africa. If basic conditions were met, if the basic infrastructure was there, investors would come. In many African countries sufficient legal systems and regulatory systems were in place; yet great investment did not come, as, for example, it did to China. The Chinese legal system, it was worth pointing out, was not the most secure or admirable in the world -- yet there was massive investment in China. It was important to remember that Africa was not a uniform whole but a collection of many different countries -- Angola had done well at attracting investment despite a civil war and an absence of other factors often cited as appealing to investors. So there had to be other factors that were not sufficiently realized or discussed.

Domestic investment was a telling factor, Mr. Onobiono said; after independence there had been a great deal of such investment, but it had gone into the wrong sectors; now Africans needed to bring back their capital, as so much of it was invested outside -- politicians and Government officials had to bring back capital from overseas and invest it locally in sectors of the economy that would supply value added. Then foreign direct investment would follow. Political will was one of the most determinant factors for attracting this kind of growth.

Discussion

A number of remarks were offered from the floor, among them that resources not only had to be attracted to Africa but had to be used wisely and efficiently; that complementarity had to be achieved between public and private resources; that a framework for sustainability of the private sector had to be pursued by African Governments; that connections had to be made between Governments and leadership and the ideas expressed at meetings such as this and average African citizens, who needed to believe in Africa and not to see the place as a region that necessarily "lost out"; that even foreign direct investment should meet certain criteria and standards -- that investment that crowded out domestic investment or was export-oriented or unfairly exploited the continent's natural resources was of little long-term use to Africa; that investment should treat African employees well and pay them decently; that selection of export-oriented businesses where African firms and countries would have the opportunity to pay down foreign debts could be useful for attracting further foreign investment; that attention should be paid to increasing efficiency so that African firms could become more internationally competitive; that educational programmes should be focused on areas that enabled Africans to take the lead in business endeavours at which they could excel; that many potential investors simply did not know what the climate in Africa was like and did not know that many successful investments had been made there; and that small- and medium-sized businesses in Africa needed greater support.

Responding to the debate, Mr. Tchane said that among other things it was true that the continent suffered from an image problem -- it was both an outside image problem and an internal image problem. It had to be corrected. Foreign direct investment was important, moreover, but the most important investors of all were national investors -- among other things, foreign investors looked around a country and wanted to know if domestic investors were happy; if Africans sent their money overseas, that said a lot. It also was vital to combat fraud, corruption and money-laundering.

Mr. Janneh remarked that Africa deserved credit for coming together, for establishing unifying programmes and ambitions; to that end it should also try to act regionally, which would allow it to negotiate better terms for Africa globally, among other things with the World Trade Organization. Africa should seize the opportunities that did come its way, and furthermore should continue to enhance its efforts to close the digital divide so as to make it more connected and competitive in the world economy.

Mr. Kwaku said that MIGA remained committed to private-sector investment in Africa; and that Africans needed to develop better confidence in their own future and to do more to counteract the continent's negative image around the world.

And Mr. Onobiono told the meeting that it was clear that macroeconomic environments and other factors were not necessarily enough to attract foreign investment, or that such investment sometimes came even though such factors were not in evidence; what appeared to be the main problem was a communication problem with the rest of the world -- it was necessary to show more people that those who invested in Africa wanted to stay invested there and to invest more.

Mr. Sauvant, the Moderator, said in summary that capacity building was clearly vital, including the strengthening of technological capacity and transfer of technology, and the bolstering of small- and medium-sized enterprises; that it was important to improve business environments, including through the establishment of a healthy macroeconomic and regulatory framework, along with recognized accounting standards and good governance; that ODA was needed among other things to fund education and build public infrastructure; that there was potential of a broad range for foreign investment in Africa, and that it was important to make this potential known and to market success stories; that the continent had an image problem and all countries in Africa tended to be lumped together; that it was important to attract the right kind of investment -- long-term, responsible investment; that it was important to differentiate between countries -- 27 African countries had an average annual growth rate in foreign direct investment of over 20 per cent over the last decade, for example; and that obstacles to attracting to investment related to problems of development in general (poor infrastructure, lack of skills); external factors (such as market access, debt burdens, and declining official development aid (ODA); and problems with domestic regulations and administrative capacity (involving such things as unnecessary red tape).



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